Get Appointment
Get Appointment
UAE Corporate Tax: Resident vs. Non-Resident Taxable Persons

UAE Corporate Tax: Resident vs. Non-Resident Taxable Persons

by | Dec 5, 2024 | PREMA Insights

The UAE’s Corporate Tax framework sets out specific criteria for determining whether a person or entity is considered a Resident Taxable Person or a Non-Resident Taxable Person. These rules help identify who must pay corporate tax and on what income.

This guide simplifies the distinctions and obligations for both categories, making it easier to grasp how the law applies to different types of taxpayers.

Resident Taxable Persons

1. Juridical Persons (Entities)
A juridical person is a legal entity with a separate personality, distinct from its owners. An entity qualifies as a Resident Taxable Person if:

  • It is incorporated in the UAE, including Free Zone entities and mainland companies like LLCs, PJSCs, foundations, or trusts.
  • It is managed and controlled in the UAE, even if formally incorporated in a foreign jurisdiction.

Example: A company registered abroad but where strategic decisions are consistently made by a UAE-based board of directors is considered a UAE Resident Person.

2. Natural Persons (Individuals)
A natural person is subject to corporate tax as a Resident Taxable Person if they conduct business activities in the UAE and generate annual turnover exceeding AED 1,000,000.

  • Taxable activities include: Professional services, consulting, sole proprietorships, and unincorporated partnerships.
  • Exempt activities include: Employment income, personal investments, and real estate investments not requiring a trade license.

Key Note: Residency for natural persons is based on their business connection to the UAE, not their physical presence or nationality.

Double Taxation Agreements for Residents
When a Resident Taxable Person qualifies as a resident in another country, the provisions of any applicable Double Taxation Agreement (DTA) will determine the residency status and taxation rights. The DTA terms take precedence over UAE tax law.

Non-Resident Taxable Persons

1. Definition
Non-Resident Persons are entities or individuals that do not meet the criteria of Resident Persons but may still be subject to UAE Corporate Tax if they:

  • Have a Permanent Establishment in the UAE.
  • Derive State Sourced Income from the UAE.
  • Earn income from Immovable Property in the UAE.

2. Permanent Establishment in the UAE
A Permanent Establishment (PE) arises if a Non-Resident Person:

  • Operates through a fixed or permanent place in the UAE, such as an office, factory, or construction site lasting more than six months.
  • Has a representative in the UAE with the authority to regularly conclude contracts on their behalf.

Exemptions: Activities of a preparatory or auxiliary nature do not create a PE, nor does temporary presence in the UAE due to exceptional circumstances (e.g., natural disasters).

3. State Sourced Income
Non-Residents are subject to corporate tax via a 0% Withholding Tax on State Sourced Income, which includes:

  • Income from goods sold or services rendered in the UAE.
  • Revenue generated from UAE-located assets or contracts performed in the UAE.
  • Movable and immovable property income within the UAE.

Key Note: This tax does not apply if the income is connected to a UAE PE.

4. Nexus with UAE Through Immovable Property
A nexus is created when a Non-Resident earns income from UAE Immovable Property, which includes:

  • Land, buildings, or structures permanently attached to the land or seabed.
  • Income from direct use, leasing, subleasing, or sale of such property.

Example: A Non-Resident earning rental income from a UAE building is subject to Corporate Tax.

5. Double Taxation Agreements for Non-Residents
If a Non-Resident qualifies for taxation in multiple jurisdictions, UAE Corporate Tax Law defers to the relevant DTA for determining taxing rights, including PE status and tax obligations.

Key Takeaways

  • Resident Persons include UAE-incorporated entities and individuals conducting significant business activities in the UAE.
  • Non-Resident Persons are taxed only on specific UAE-linked income, such as through a PE, State Sourced Income, or immovable property nexus.
  • DTAs play a crucial role in avoiding double taxation and ensuring fair treatment.

By distinguishing between Resident and Non-Resident Taxable Persons, the UAE’s tax regime ensures clarity and fairness while aligning with international standards.

Source: Corporate Tax Guide | CTGGCT1 | September 2023