A juridical person is subject to Corporate Tax if it is not a Resident Person under the conditions above, but either:
• has a Permanent Establishment in the UAE; or20
• derives State Sourced Income (subject to a 0% Withholding Tax); or21
• earns income from Immovable Property in the UAE.22

Non-Resident Person with a Permanent Establishment in the UAE

The concept of a Permanent Establishment is used in tax regimes across the world to determine if and when a foreign juridical person has established sufficient presence in a country to warrant the direct taxation of their profits in that country. Generally, a country only has the right to tax the profits of a foreign business if that business has a Permanent Establishment in that country.

A Non-Resident Person may have a Permanent Establishment in the UAE if:

• they conduct a Business through a fixed or permanent place in the UAE.23 This could for example include an office, a factory or a building site lasting for more than 6 months where the Business is wholly or partly conducted; or
• another Person has and habitually exercises an authority to conduct a Business or Business Activity in the UAE on behalf of the Non-Resident Person.24 This includes situations where the Person concludes contracts in the UAE on behalf of the Non-Resident Person or negotiates contracts without the need for any

material modification by the Non-Resident Person. For example, where a Business regularly sends out sales representatives to the UAE who agree and sign contracts in the UAE.25

Preparatory and auxiliary activities

A Non-Resident Person is not considered to have a Permanent Establishment in the UAE if the activities conducted through the fixed place of business are of a preparatory and auxiliary nature.26 For the purpose of assessing whether the activities of a Non- Resident Person are of a preparatory and auxiliary nature, the mere physical presence of a natural person in the UAE will not automatically create a Permanent Establishment for a Non-Resident Person. The circumstances in which the physical presence of a natural person would not result in a Permanent Establishment include where such presence is a consequence of a temporary and exceptional situation.27

The presence of a natural Person in the UAE shall be considered a consequence of a temporary and exceptional situation where all of the following conditions are met:28

• The presence of the natural person in the UAE is a consequence of exceptional circumstances of a public or private nature.
• The exceptional circumstances cannot reasonably be predicted by the natural person or the Non-Resident Person.
• The natural person did not express any intention to remain in the UAE when the exceptional circumstances end.
• The Non-Resident Person does not have a Permanent Establishment in the UAE before the occurrence of the exceptional circumstances.
• The Non-Resident Person did not consider that the natural person is creating a Permanent Establishment or deriving income in the UAE as per the tax legislation applicable in other jurisdictions.

Non-Resident Person that derives State Sourced Income

Any Person that is a Non-Resident Person and receives State Sourced Income is subject to Corporate Tax on this income by way of Withholding Tax if the income is not attributable to a Permanent Establishment of the Non-Resident Person in the UAE.29

Income is considered to be State Sourced if:
• it is derived from a Resident Person;30 or
• it is derived from a Non-Resident Person in connection with the Non-Resident Person’s Permanent Establishment in the UAE;31 or
• it is derived from activities or contracts performed in the UAE, assets located in the UAE, capital invested, rights used, or services performed or benefitted from in the UAE.32

State Sourced Income may include:

In instances where a Non-Resident Person earns State Sourced Income only and where this income is not attributable to a Permanent Establishment in the UAE, the income is currently subject to a 0% Withholding Tax. Practically, this means no Corporate Tax liability arises in this situation.

Non-resident juridical person that has a nexus in the UAE (derives income from UAE Immovable Property)

Corporate Tax is also applicable when there is a nexus between a Non-Resident juridical person and the UAE. The nexus is the connecting link for Corporate Tax purposes.

Cabinet Decision No. 56 of 2023 specifies that when any Non-Resident juridical person earns income from Immovable Property in the UAE, the Non-Resident juridical person will have a nexus in the UAE.36 As a result, Non-Resident juridical persons are subject to Corporate Tax on income attributable to the Immovable Property in the UAE.37

Immovable Property includes rights over areas of land, buildings, structures, or engineering work permanently attached to land or seabed, or any fixture or equipment

which makes up a permanent part of the land or is permanently attached to a building, structure, engineering work or seabed.38 Taxable Income attributable to Immovable Property includes income derived from a right in rem, sale, disposal, assignment, direct use, letting (including subletting) and any other form of exploitation of Immovable Property.39

Impact of Double Taxation Agreements on Non-Resident Taxable Persons

In some situations, related to cross-border activities, double taxation may occur due to the overlap in the taxing rights claimed by different jurisdictions.

The definition of Permanent Establishment in the Corporate Tax Law generally follows the principles provided in Article 5 of the OECD Model Tax Convention on Income and Capital. A Non-Resident Person may need to consider these principles and the relevant provisions of any Double Taxation Agreement between the country of residence of the Non-Resident Person and the UAE, in their assessment of whether they have a Permanent Establishment in the UAE.

If a Non-Resident Person has a Permanent Establishment in the UAE under a specific Double Taxation Agreement, the primary taxing rights on the income earned from the activity of the Permanent Establishment will be allocated to the UAE, as the source State. However, each case will need to be determined considering the nature of the Business of the Non-Resident Person and its own facts and circumstances, as well as the terms of the applicable Double Taxation Agreement.

In instances where the terms of a Double Taxation Agreement are inconsistent with the provisions of the Corporate Tax Law, the terms of the Double Taxation Agreement would prevail.40

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