Corporate Tax in UAE and Residential Status

Resident Juridical Taxable Persons: an entity incorporated or otherwise established or recognised under the laws and regulations of the UAE, or under the laws of a foreign jurisdiction, that has a legal personality separate from its founders, owners and directors. Separate legal personality means that the entity has its own rights, obligations and liabilities distinct from its founders or owners. 

 A Juridical Person is Resident, if it is either:  

• Incorporated or Established or Recognised in UAE (Including in Free Zones) 

• Incorporated or Established or Recognised outside UAE, but Effectively managed and controlled in UAE 

Effective Management and Control:    Examples of juridical persons that are incorporated or otherwise established or recognised in the UAE include: 

• Joint Liability Companies,  

• Limited Partnership Companies, 

•  Limited Liability Companies (LLCs),  

• Public Joint Stock Companies (PJSCs),  

• Private Joint Stock Companies (PJSCs), 

•  foundations, 

•  trusts that have been established under the UAE mainland legislation,  

•  other entity forms that have a separate legal personality under the applicable UAE mainland legislation or Free Zone regulations.  

UAE branches of a domestic or foreign juridical person are regarded as an extension of their head office and, therefore, are not considered separate juridical persons.  Effective Management and Control: Whether a juridical person is effectively managed and controlled in the UAE needs to be determined with regard to the specific facts and circumstances of the juridical person and its activities. Key factors in determining place of effective management and control: 

• Where is the Management and commercial decision of entity made from? 

• Where does the Board of Directors (other decision makers) make the management decisions? 

• Where is the location another person or body resides to whom decision making powers are delegated to? 

 For a juridical person to be considered effectively managed and controlled in the UAE, it is not necessary for its board members (or equivalent) to be resident in the UAE. * It is important to note that there can only be one place of effective management and control at any one time.  Example: ABC Ltd is a limited company registered in a foreign jurisdiction. C Ltd is mainly owned by an individual who resides in the UAE (Mr X). ABC Ltd’s annual board meetings are held outside of the UAE, in the country where the company is registered. These meetings are attended by local directors whose only involvement in the company is attending such meetings. The local directors do not receive information that would enable them to reasonably reach commercial decisions and they always follow the suggestions of Mr X. Mr X provides these suggestions remotely from his home in the UAE. Based on these facts, it is likely that ABC Ltd is effectively managed and controlled from the UAE, as the local directors simply agree with all suggestions made by Mr X, and Mr X provides such suggestions from the UAE.   

Residence for Corporate Tax purposes is not determined by where a natural person resides or is domiciled. For natural persons, residence for Corporate Tax purposes is concerned with the person’s business connection to the UAE.   Specifically, Corporate Tax only applies to natural persons who are engaged in Businesses or Business Activities in the UAE and earn Turnover from these Businesses or Business Activities in excess of AED 1,000,000 in a Gregorian calendar year. 

This includes sole establishments and individual partners in Unincorporated Partnerships that conduct a Business or Business Activity in the UAE. A sole establishment is a trading Business owned by a natural person, where the proprietor is not separate from the Business. Owner has unlimited liability for the Business’ debts and other obligations.     

1. Non-Resident Person with a Permanent Establishment in the UAE 

Permanent Establishment is the term used in Corporate tax to determine whether a foreign juridical person has sufficient presence in UAE that demand taxation of his income in UAE under corporate tax.  A Non-Resident Person is deemed to have a Permanent Establishment in the UAE if:  

• Conducts business through a Permanent Establishment such as an office, a factory or a building site lasting for more than 6 months where the Business is wholly or partly conducted. 

• Another person having authority and usually conducts business or business activities in the UAE on behalf on a non-resident person, without much modification by the Non-resident person. 

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. 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.   

2. 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  Withholding tax, notified is 0%. Which results in no tax.  Income is considered to be State Sourced if: 

• it is derived from a Resident Person 

• t is derived from a Non-Resident Person in connection with the Non-Resident Person’s Permanent Establishment in the UAE 

• 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. 

State Sourced Income may include:  • income from the sale of goods in the UAE. • income from movable or Immovable Property in the UAE.  • income from the disposal of shares of a Resident Person.  

3. Non-resident juridical person that has a nexus in the UAE 

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. 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. As a result, Non-Resident juridical persons are subject to Corporate Tax on income attributable to the Immovable Property in the UAE.  

With respect to corporate taxation and residential status in the UAE, every company and individual add their own distinctive narrative. Efficient management, business networks and the complex notion of Permanent Establishment blend to shape our obligations.