Corporate tax in UAE is a directly imposed tax on the annual profit or income of corporations and businesses. The UAE corporate tax law certainly has the concept of Permanent Establishment (PE). This article seeks to expound on what permanent establishment is in line with the latest issued corporate tax statute in the UAE.
Permanent Establishment Under Corporate Tax UAE
A Permanent Establishment (PE) under corporate tax in the UAE refers to a fixed place of business through which the activities of a business are wholly or partly carried out. This includes branches, offices, factories, workshops, and construction sites where activities last for more than six months. Understanding the criteria and implications of having a PE is crucial for businesses to comply with tax regulations and optimize their tax liabilities
The UAE uses the same definition of PE as used in the Model Tax Convention on Income and Capital by OECD (Organization for Economic Cooperation & Development). The Federal Tax Authority also advises foreign persons to assess tax agreements between the UAE and their home country before deciding on the issue of permanent establishment.
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The provisions of the Corporate Tax Law Regarding Permanent Establishment
The following are the vital provisions of the corporate tax law regarding PE;
- A foreign person or nonresident entity is said to have a PE in UAE if it owns at least one permanent or fixed location in the country from where it operates its business.
- A foreign person or nonresident entity is said to have a PE in UAE if some other resident persons hold the authority to operate a business on part of the foreign person who is not a resident.
- A foreign person or nonresident entity is said to have a PE in UAE if it owns any other connections or partnerships that are mentioned in any other Cabinet Decisions if not in Federal Decree-Law no. 47.
- The provisions of federal law no. 47 define the permanent place or location as a management place where administration and decision-making needed for business conduction is done. It can be a workshop, factory, office, branch, any property like a building or land, gas or oil well, a mine, a setup for natural resources extraction of all kinds, a construction site, a building, etc.
- A permanent place of a foreign person who is not a resident will not be deemed as PE if it is used to deliver, display or store inventory or products that belong to the foreign nonresident.
- A permanent place of a foreign person who is not a UAE resident will not be deemed as PE if he/she owns inventory or products to let another individual process them. These products can also be of auxiliary or preparatory nature to remain out of the definition.
- The above two provisions will not apply to a resident who does all this by running a business activity in a permanent place or collaborates with someone who runs a business activity in the same place under a permit or license.
- A resident person can get the authority to run business activity in a permanent place on part of the foreign nonresident if he/she performs regular contracts on part of the foreign person and the foreign person never modifies the contract. This is not possible if the foreign person tries to make such a partnership with an independent agent. When collaborating with an independent agent, a permanent place would never be deemed as PE.
- If the foreign person wishes to make his/her business’s permanent place as PE by collaborating with a natural or resident person, it is important that the business activities that are being performed by the resident person are CIGAs (core income generating activities) and are UAE sourced.
Table: Permanent Establishment Under Corporate Tax UAE
| Aspect | Description |
|---|---|
| Definition | A fixed place of business through which the business activities of an enterprise are wholly or partly carried out. |
| Examples | Branches, offices, factories, workshops, and construction sites lasting more than six months. |
| Fixed Place of Business | Physical locations such as offices or factories constitute a PE. |
| Duration Threshold | Activities at a construction site or installation project must last more than six months to be considered a PE. |
| Dependent Agent | An agent who habitually exercises authority to conclude contracts on behalf of the enterprise within the UAE. |
| Exclusions | Activities of a preparatory or auxiliary character, such as storage, display, or delivery of goods. |
| Tax Implications | Income generated from a PE is subject to UAE corporate tax. |
| Record-Keeping Requirements | Detailed records of income and expenses must be maintained for compliance. |
| Compliance Obligations | Businesses must meet regulatory requirements to avoid penalties and optimize tax strategy. |
| Consultation | Seeking advice from corporate tax consultants to ensure compliance and efficient tax management. |
Choose Corporate Tax Advisory Services
It is highly advisable for corporations to avail of tax advisory services from trusted tax consultants in the UAE to enforce and to meet the set regulations and standards of the Federal Tax Authority. Contact Corporate Tax UAE today and we shall be happy to assist you!
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Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.
