The UAE’s new Corporate Tax regime, effective from 1 June 2023, has brought significant changes for both residents and non-residents. Understanding the FTA corporate tax rules for non-resident persons in the UAE is essential for individuals and businesses that earn income from the region.
Non-resident persons may be liable for UAE corporate tax if they maintain a Permanent Establishment (PE), have a Nexus through immovable property, or earn State-Sourced Income. This guide explains how these rules apply, when registration is required, and what compliance obligations exist.
What Makes a Non-Resident Person under UAE Corporate Tax Law?
Under Federal Decree-Law No. 47 of 2022, a Non-Resident Person is any person not considered a UAE tax resident but who has:
A Permanent Establishment (PE) in the UAE
State-Sourced Income from the UAE
A Nexus in the UAE (applies to juridical persons)
Permanent Establishment (PE) Explained
A Permanent Establishment arises when a business has a fixed place in the UAE or an agent that habitually concludes contracts on its behalf.
Examples of PE include:
A branch office, warehouse, or workshop
An agent in the UAE authorized to negotiate or sign contracts
Even natural persons may have a PE if their UAE turnover exceeds AED 1 million in a calendar year.
Nexus through Immovable Property
For juridical persons, owning or deriving income from immovable property in the UAE creates a nexus, which establishes tax liability even without a traditional PE.
Example: A foreign company that owns a building and rents it out in the UAE.
State-Sourced Income
State-Sourced Income includes any income derived from:
Services performed in the UAE
Property or assets located in the UAE
Rights to use IP in the UAE
This applies even if the non-resident has no physical presence in the country.
When Registration Is Required
Non-residents must register for corporate tax in the following cases:
Juridical persons: If they have a PE or Nexus in the UAE
Natural persons: If UAE turnover related to PE exceeds AED 1 million in a year
Non-residents that only earn State-Sourced Income without a PE or Nexus are not required to register.
Corporate Tax Rates & Free Zone Considerations
0% on taxable income up to AED 375,000
9% on income above AED 375,000
Free Zone entities that qualify as “Qualifying Free Zone Persons” may benefit from 0% on qualifying income, but non-qualifying income may still be taxed at 9%.
Compliance Obligations for Non-Residents
If liable to corporate tax, non-residents must:
Maintain standalone financial statements under IFRS
File corporate tax returns within 9 months of year-end
Keep tax and accounting records for 7 years
Failure to comply may result in penalties from the FTA.
Benefits of Double Tax Avoidance Agreements (DTAs)
The UAE has signed numerous DTAs with other countries. These agreements help prevent double taxation and may redefine Permanent Establishment rules.
For example, if a DTA exists between the UAE and a foreign country, businesses may receive tax relief or exemptions.
Common Scenarios & Practical Examples
Consultant Fees: A foreign consultant providing services to UAE clients—income is state-sourced.
Agent Arrangements: A UK company’s UAE agent negotiates contracts—PE may be triggered.
Property Ownership: A Swiss company owning UAE real estate—creates nexus.
Freelancers: An individual earning AED 1.2 million in UAE—must register for corporate tax.
FAQs
Q1: What is considered State-Sourced Income in the UAE?
Income from services, property, or intellectual property within the UAE is considered State-Sourced Income.
Q2: Do non-residents always need to register for corporate tax?
No. Registration is only required if there is a PE, Nexus, or turnover above AED 1 million for natural persons.
Q3: What is the UAE corporate tax rate for non-residents?
0% on income up to AED 375,000 and 9% on income above that threshold.
Q4: Are Free Zone companies exempt from corporate tax?
Qualifying Free Zone Persons may enjoy 0% on qualifying income, but other income may be taxed at 9%.
Q5: How long should records be kept?
Non-residents must retain records for seven years.
Conclusion
The FTA corporate tax rules for non-resident persons in the UAE can significantly impact how foreign businesses and individuals manage their UAE-related income. Identifying whether you have a PE, Nexus, or only State-Sourced Income is crucial to ensuring compliance.
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