Understanding Corporate Tax for Non-Resident Persons in the UAE

3 November 2023

Understanding Corporate Tax for Non-Resident Persons in the UAE

Understanding Corporate Tax for Non-Resident Persons in the UAE

The Federal Tax Authority (FTA) has issued a comprehensive guide clarifying the criteria for determining Corporate Tax obligations for non-resident individuals and entities operating in the UAE. The guide addresses instances that necessitate registration for Corporate Tax, calculations of taxable income, and other compliance requirements in accordance with the Corporate Tax Law, effective since June 1, 2023.

The FTA’s guide provides valuable insights and general guidance for both natural persons (individuals) and juridical persons (including public and private corporations) who generate income within the UAE. It assists them in determining whether they fall under the scope of Corporate Tax.

In a press release, the FTA encourages all concerned non-resident individuals and entities that earn income in the UAE, or conduct business activities in the country, to consult the newly issued guidelines. They are advised to refer to the Corporate Tax Law, relevant implementing Decisions, and other guides available on the FTA website for comprehensive information.

The FTA underscores the importance of thoroughly reviewing the guide to gain a clear understanding of its content, definitions, and the practical application of Corporate Tax rules. The guide includes numerous simplified examples to elucidate how the Corporate Tax system applies to non-resident individuals and entities.

Corporate Tax for Non-Resident Individuals

According to the guide, non-resident natural persons are subject to Corporate Tax in specific cases. The first scenario is when a natural person maintains a Permanent Establishment in the UAE and generates a Turnover exceeding AED 1 million during a calendar year. The second case applies when they earn State-Sourced Income, which pertains to income derived from or accruing within the UAE under the Corporate Tax Law.

Corporate Tax for Non-Resident Entities

For non-resident juridical persons incorporated or formed outside the UAE, the guide outlines three situations that make them subject to Corporate Tax. These include having a Permanent Establishment in the UAE, deriving State-Sourced Income in the UAE, and possessing a nexus in the UAE. A nexus arises when an entity earns income from Immovable Property in the UAE, such as land, buildings, fixtures, or equipment permanently attached to structures or land.

The guide further stipulates that non-resident juridical persons with Permanent Establishments or a nexus in the UAE are required to register for Corporate Tax purposes and obtain a Tax Registration Number (TRN). This ensures compliance and avoids administrative penalties.

Notably, Corporate Tax registration is not obligatory for non-resident juridical persons who solely generate State-Sourced Income and do not have a Permanent Establishment or nexus in the UAE.

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3 November 2023

Understanding Corporate Tax for Non-Resident Persons in the UAE

FTA

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