Corporate Tax For Non-Resident In UAE
UAE is known to be the most business-friendly country in the entire world. however, rules have to be followed, therefore non-resident individuals and businesses with income in the UAE must understand Corporate Tax For Non-Resident In UAE to better know their tax obligations, the matter that is being regulated by the Federal Tax Authority (FTA).
the corporate tax system in the UAE is designed to support the country’s economic objectives, so understanding Corporate Tax For Non-Resident In UAE is essential for staying compliant especially for businesses that are not UAE-based, it also gives you the chance to seize many growth opportunities.
Who is considered non-resident for UAE CT purposes
According to the laws and rules that are regulating Corporate Tax For Non-Resident In UAE by Federal Tax Authority (FTA):
Under the Corporate Tax Law, a juridical person is considered a non-resident if it is incorporated in a foreign country and is effectively managed and controlled outside the UAE. A natural person is considered a non-resident for UAE corporate tax purposes if he or she is not engaged in a taxable business or business activity in the UAE.
so According to laws and rules that are regulating Corporate Tax For Non-Resident In UAE, we understand now that a non-resident person refers to a natural person or juridical person (legal entity) who is not a resident of the UAE but engages in specific business activities within the country. not incorporated in the UAE and natural persons who do not reside in the UAE but earn state-sourced income.
Non-resident status is determined by the following:
- No incorporation or effective management in the UAE.
- No physical presence for more than 183 days in a calendar year for natural persons.
When will a non-resident person be subject to corporate tax
A non-resident person will be subject to Corporate Tax For Non-Resident In UAE if the non-resident person has a permanent establishment in the UAE, or earns income sourced from the UAE (subject to 0% taxation). Income will generally be considered to be sourced from the UAE where it is derived from a UAE resident, a UAE Permanent Establishment, or the income is derived from activities performed or from assets located, capital invested and rights used in the UAE.
Non-residents must register for corporate tax if:
- Juridical persons: If the non-resident has a permanent establishment or nexus in the UAE, it must register with the Federal Tax Authority (FTA).
- Natural persons: If their turnover from UAE business activities exceeds AED 1,000,000 within a Gregorian calendar year(Taxable Non-Resident Person).
How are non-residents subject to UAE corporate tax
Non-resident persons will only be subject to UAE corporate tax on:
- income from their Permanent Establishment in the UAE.
- income sourced in the UAE (subject to a 0% withholding tax).
What income of a Non-Resident Person is subject to Corporate Tax in the UAE?
UAE imposes a tax rate on the taxable income of a non-resident the same rate as a resident person and the rates are as following:
- corporate tax laws apply 0% (no taxes) on the first 375000 AED.
- a rate of 9% on the income that exceeds 375000 AED of taxable income.
Will non-residents be required to register for VAT?
Non-residents who make taxable supplies in the UAE must register for VAT unless another UAE resident is responsible for accounting for VAT on these supplies.
Other UAE Corporate Tax Requirements for a Non-Resident Person
- Standalone Financial Statements and attribution: A Non-Resident Person registered for Corporate Tax in the UAE follows the same reporting rules as a Resident. Their Taxable Income is calculated using separate Financial Statements, prepared according to UAE-accepted accounting standards (IFRS). Alternatively, they can use the Cash Basis of Accounting for Taxable Income calculation if certain conditions are met. The Non-Resident must determine the income related to a Permanent Establishment or connection in the UAE, following the arm’s length principle and internationally accepted methods for attributing income and expenses.
- Tax Return submission: A Non-Resident Person, like a Resident, must file a Tax Return with the FTA and pay Corporate Tax within nine months after the end of the Tax Period. The Tax Period is typically the Gregorian calendar year or the 12-month period for which the Taxable Person prepares Financial Statements. In special cases, a Taxable Person can apply to the FTA to extend a period to up to 18 months or shorten it to between 6 and 12 months.
- Record keeping: A Non-Resident Person must keep all records and documents for 7 years after the end of the relevant Tax Period, regardless of the Tax Procedures Law.
Permanent Establishment for Non-Residents in UAE
A Non-Resident Person may establish a Permanent Establishment in the UAE if:
- They have a fixed place in the UAE from which they conduct business, either fully or partially.
- Someone in the UAE regularly acts on their behalf to conduct business.
- They have any other type of connection in the UAE as specified by the Cabinet.
Any applicable Double Taxation Agreement between the UAE and the Non-Resident Person’s home country must be considered to determine if a Permanent Establishment exists. Subsequent sections cover different types of Permanent Establishments.
What is Nexus in UAE Corporate Tax
the nexus concept in UAE corporate tax means the relationship that non-residents might have with the UAE, which results in tax liability, thus Non-Resident Persons that have a nexus in the UAE will be required to register for Corporate Tax purposes. however, The nexus concept only applies to the juridical Non-Resident Persons and it does not apply to natural persons.
When Does a Non-resident Juridical Person Have a UAE Nexus Under the UAE Corporate Law?
A juridical Non-Resident Person will be considered to have a nexus in the UAE if it derives income from any Immovable Property in the UAE, which means:
- any area or land over which rights interests or services can be created.
- any building, structure, or engineering work attached to the land permanently or attached to the seabed.
- any fixture or equipment which makes up a permanent part of the land or is permanently attached to the building, structure, or engineering work or attached to the seabed.
Conclusion
Thus we have come to know the most important points about Corporate Tax For Non-Resident In UAE, and we have illustrated Who is considered non-resident for UAE CT purposes, When will a non-resident person be subject to corporate tax, How are non-residents subject to UAE corporate tax and Permanent Establishment for Non-Residents, also What is Nexus in UAE Corporate Tax.
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