Non Resident

TAXABILITY OF NON-RESIDENT PERSONS

The UAE Corporate Tax Law defines the term "Non-Resident Person" to mean a Taxable Non-Resident Person. However, it is important to note that not all Non-Resident Persons are subject to Corporate Tax in the UAE.

Non-Resident Persons will only be subject to UAE Corporate Tax on the following Incomes:

- income attributable to their Permanent Establishment in the UAE;

- income that is attributable to a nexus in the UAE as determined in Cabinet Decision No. 56 of 2023;

- income that is sourced in the UAE (subject to a 0% Withholding Tax).

A Natural Person is considered a Non-Resident Person for UAE Corporate Tax purposes if he or she is not engaged in a taxable Business or Business Activity in the UAE.

Click here to know more about how the UAE Corporate Tax applies to Natural Persons engaged in a Business / Business Activity in the UAE.

Some of key Corporate Tax details are listed below :

Applicability

Under the Corporate Tax Law, the term “Non-Resident Person” means a Person who is not a Resident Person. It is therefore necessary to first understand who a Resident Person is.

A Resident Person [1] is any of the following Persons:

a. A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of the State, including a Free Zone Person.

b. A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the State.

c. A natural person who conducts a Business or Business Activity in the State.

Therefore, a Non-Resident Person is:

• A Natural Person who is not a Resident Person (see above) but:

a. has a Permanent Establishment in the UAE and has a Turnover attributable to their Permanent Establishment that exceeds AED 1,000,000 within a Gregorian calendar year; or

b. derives State Sourced Income, (i.e. income accruing in, or derived from, the UAE).

• A Juridical person that is incorporated or formed outside the UAE and not effectively managed and controlled in the UAE to the extent they:[2]

a. have a Permanent Establishment in the UAE (i.e. a fixed place of Business or other form of presence in the UAE); or

b. derive State Sourced Income, (i.e. income accruing in, or derived from, the UAE); or

c. have a nexus in the UAE.

[1] Article 11 (3) of Corporate Tax Law,

[2] Article 11 (4) of the Corporate Tax Law.

Registration for Tax

Natural Person

A Non-Resident Person that is Natural Person is required to register for Corporate Tax purposes and obtain a Tax Registration Number when the Non-Resident Person has a Turnover attributable to their Permanent Establishment in the UAE that exceeds AED 1,000,000 within a Gregorian calendar year.

Juridical persons

A Non-Resident Person that is a Juridical Person is required to register for Corporate Tax purposes and obtain a Tax Registration Number when the Non-Resident Person is subject to Corporate Tax due to having: [1]

1. a Permanent Establishment in the UAE; [2] or

2. a nexus in the UAE. [3]

As soon as the Person determines that their activities will trigger a Permanent Establishment in the UAE or that they have a nexus in the UAE, they are considered a Non-Resident Person under the Corporate Tax Law and should register with the FTA for Corporate Tax purposes to avoid any compliance delays that may result in administrative penalties.

A Non-Resident Person that is a Juridical Person, derives only State Sourced Income and does neither have a Permanent Establishment in the UAE nor a nexus in the UAE, shall not register for Corporate Tax purposes. [4]

[1] Article 51(1) of the Corporate Tax Law.

[2] Article 11(4)(a) of the Corporate Tax Law.

[3] Article 11(4)(c) of the Corporate Tax Law.

[4] Article 2(1)(e) of Ministerial Decision No. 43 of 2023 and Article 4 of Cabinet Decision 56 of 2023.

Obligations

Standalone Financial Statements and attribution

A Non-Resident Person that is required to register for Corporate Tax purposes is subject to the same rules as a Resident Person with regards to their reporting requirements. The Taxable Income for a Non-Resident Person is to be determined on the basis of adequate and standalone Financial Statements prepared for financial reporting purposes in accordance with accounting standards accepted in the UAE (which are International Financial Reporting Standards “IFRS”). Notwithstanding this, a Taxable Person may calculate its Taxable Income on the basis of Financial Statements prepared using the Cash Basis of Accounting, if specific conditions are met.

A Non-Resident Person must determine its Taxable Income which is attributable to a Permanent Establishment or nexus in the UAE. Attribution of income and expenditure to a Permanent Establishment should be based on the arm’s length principle and internationally accepted attribution methodologies as a Non-Resident Person and its Permanent Establishment are considered to be Related Parties.

Tax Return submission

On the same basis as a Resident Person, a Non-Resident Person must file a Tax Return with the FTA and settle the Corporate Tax payable, no later than (9) nine months from the end of the relevant Tax Period.

A Tax Period, the period for which a Tax Return is required to be filed for the purposes of Corporate Tax, is normally the Gregorian calendar year, or the (12) twelve-month period for which the Taxable Person prepares Financial Statements.

However, in specific cases, a Taxable Person can make an application to the FTA to extend a current period to a maximum of 18 months or to shorten the subsequent period to between 6 and 12 months.

Record keeping

Notwithstanding the provisions of the Tax Procedures Law, a Non-Resident Person must maintain all records and documents for a period of 7 years following the end of the Tax Period to which they relate.

Small business relief: Unavailable to a Non-Resident Person

As per the Corporate Tax Law, only a Resident Person can elect for small business relief. Therefore, Non-Resident Persons are not eligible for the small business relief. However, this may be affected by applicable Double Taxation Agreements.

Nexus in the UAE

The concept of a 'Nexus' under UAE Corporate Tax is applicable only to a Non-Resident Juridical Person and not a Natural Person.

A Non-Resident Person that is a Juridical Person can have a nexus in the UAE if they earn income from Immovable Property in the UAE. [1]

Article (4) of Cabinet Decision No. 56 of 2023

“A Non-Resident Person that has a nexus in the State in accordance with Article (2) of this Decision shall be required to register with the Authority in accordance with Article (51) of the Corporate Tax 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: [2]

a. any area or land over which rights or interest or services can be created; or

b. any building, structure or engineering work attached to the land permanently or attached to the

seabed; or

c. 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.

Income from Immovable Property will include income derived by way of sale, disposal, assignment, direct use, leasing or sub-leasing or any other form of exploitation of Immovable Property.[3]

Therefore, Juridical Non-Resident Persons that have a Nexus in the UAE are required to register for Corporate Tax purposes.

Taxable Income from Immovable Property will be subject to Corporate Tax as follows:

• 0% (zero percent) on the first AED 375,000 of Taxable Income

• 9% (nine percent) on the amount above AED 375,000 of Taxable Income

Non-Resident Qualifying Free Zone Persons

If a Non-Resident Person is a Qualifying Free Zone Person, then the provisions related to the Free Zone Corporate Tax regime will apply on income from Immovable Property received by such Person.

[1] Article 2 of Cabinet Decision No. 56 of 2023

[2] Article (1) of Cabinet Decision No. 56 of 2023.

[3] Article 2(2) of Cabinet Decision No. 56 of 2023.

State Sourced Income

Article 13 of the Corporate Tax Law

Income shall be considered State Sourced Income in any of the following instances:

a. Where it is derived from a Resident Person.

b. Where it is derived from a Non-Resident Person and the income received has been paid or accrued in connection with, and attributable to, a Permanent Establishment of that Non-Resident Person in the State.

c. Where it is otherwise accrued in or derived from activities performed, assets located, capital invested, rights used, or services performed or benefitted from in the State.

Corporate Tax shall be imposed if the Non-Resident Person derives State Sourced Income, i.e. income accruing in, or derived from, the UAE [1]. The Non-Resident Person should determine if the income qualifies as State Sourced Income.

State Sourced Income and Withholding Tax

Certain State Sourced Income, derived by a Non-Resident Person, that is not attributable to a Permanent Establishment, may be subject to Withholding Tax, which is currently levied at the rate of 0% [2].

State Sourced Income and Permanent Establishment

State Sourced Income and income attributable to a Permanent Establishment in the UAE are not mutually exclusive.

State Sourced Income can be attributable to a Permanent Establishment and, therefore, Corporate Tax is imposed on State Sourced Income that is attributable to a Permanent Establishment in the UAE.

State Sourced Income and nexus

State Sourced Income and income from a nexus in the UAE are not mutually exclusive. State Sourced Income includes income from a nexus and, therefore, Corporate Tax is imposed on State Sourced Income that is related to a nexus in the UAE.

There will not be a need for the Non-Resident Person to register for Corporate Tax if the State Sourced Income they derive is not attributable to a UAE Permanent Establishment or a nexus in the UAE.

[1] Article 11(4)(b) of the Corporate Tax Law.

[2] Article 45(1)(a) of the Corporate Tax Law.