With the official release of the corporate tax in UAE, all businesses and entities are striving to know their liabilities in order to stay compliant with the legislation. There are various provisions in the Federal corporate tax law that businesses should learn such as those about residents and non-resident persons. This article will revolve around the taxation of non-resident persons.
Who is a non-resident person as per the corporation tax law?
A non-resident person, as defined by the UAE Federal Tax Authority (FTA), is an individual or entity that does not have a persistent place of abode in the UAE and does not conduct business activities within the country, in accordance with corporate tax in UAE. Only the income derived from sources within the UAE is subject to taxation for non-resident persons or businesses. This means that if a non-resident person earns income from a UAE source, they will be taxed on that income. Conversely, if a non-resident person earns income from a source outside of the UAE, they will not be taxed on that income.
Tax Implications for Non-Resident Persons Doing Business in the UAE
Corporate tax in UAE is levied differently on non-resident persons from resident entities.
- Tax Implications for Non-Resident Persons Doing Business in the UAE:
- Corporate tax in the UAE is applied differently to non-resident persons compared to resident entities.
- Non-resident persons are subject to taxation on a withholding tax basis.
- This means that the entity paying income to the non-resident is responsible for withholding a portion of the income as tax and remitting it to the Federal Tax Authority (FTA).
- The withholding tax rate for non-resident persons varies depending on the type of income earned, generally being lower than the tax rate for resident entities.
- Example of Withholding Tax Rate:
- For instance, if a non-resident person earns rental income from a property in the UAE, the withholding tax rate is 5%.
- In contrast, if the same person were a resident of the UAE, the tax rate on rental income would typically range from 0% to 20%, depending on the amount earned.
Guidelines for Determining Residency Status
The residence, kind of business operations, and length of time spent inside the UAE are all taken into account when determining a person's or an entity's residency status. The FTA provides guidelines for determining residency status which are as follows:
Place of Abode
A person will be considered a non-resident person if:
- a) When it has a fixed location in the State where the Non-Resident Person conducts all or part of its business.
- b) When a person has permission to carry out a business or other activity in the State on behalf of a non-resident person and regularly exercises such permission.
- c) If it has any other type of connection to the State, as defined in a decision made by the Cabinet on the Minister's recommendation.
Nature of Business Activities: An individual or entity is considered a resident of the UAE if they conduct business activities within the country. This includes carrying out trade, commerce, or any other activity that generates income.
How does Corporate Tax Apply to a Qualifying Public Benefit Entity?
Duration of Time Spent in the UAE: A person or organization is classified as a resident of the UAE if they spend 183 days or more there during a tax year.
What is meant by a fixed location?
According to corporate tax law, a non-resident person is allowed only to have a fixed location in UAE. The places which can be considered as fixed locations are:
- a) An area of management where managerial and business choices that are fundamental to the operation of the Business are made.
- b) the branch.
- c) A workplace.
- d) Land, structures, and other real estates.
- e) A facility or installation used to explore natural resources, whether they are renewable or not.
- f) A quarry, gas or oil well, a mine, or similar other location where natural resources are extracted, including the equipment and buildings utilized there.
- g) a construction site, project, assembly or installation location, or supervision-related activities—but only if such a site, project, or activities—whether undertaken independently or in cooperation with other sites, projects, or activities—continue for a period of time longer than a year.
In conclusion, an individual or company who does not have a permanent place of residence in the nation and does not engage in commercial activity there is referred to as a non-resident person regarding corporation tax in the United Arab Emirates. Non-resident persons are taxed on a withholding tax basis and are only taxed on income earned from UAE sources. The residency status of an individual or entity is determined based on several factors, including the place of abode, the nature of business activities, and the duration of time spent in the UAE. It is important for non-resident persons to pay corporate tax in UAE and understand their tax obligations and ensure that they comply with the tax laws and regulations in the UAE. Consult corporate tax advisory services if needed.
