Clarification On Non-Residents Corporate Tax Criteria in UAE

Non-Residents Corporate Tax Criteria in UAE

In the ever-evolving business world, the United Arab Emirates (UAE) stands out as a home to international commerce, boosting growth, stimulating investment, and motivating innovation. Thus, the country attracts a wide range of entrepreneurs and companies from all over the globe.

The country is famous as a tax-friendly country in the world. However, the UAE government has introduced corporate taxes for companies there. The introduction of corporate tax in the United Arab Emirates on 1st June 2023 has raised numerous questions for non-residents conducting their business there.

The Federal Tax Authority (FTA) has issued a comprehensive guide clarifying criteria to determine which non-residents are subject to corporate tax, the calculation for taxable income, and the registration process.

If you are a non-resident looking for an in-depth guide to UAE tax regulations for non-residents,  you have landed in the right place. The guide aims to provide a concise and clear explanation of the Clarification on Non-Residents’ Corporate Tax Criteria in the UAE. In addition, we will draw your attention to the critical points of the guide issued by the FTA.

Who is a Non-Resident Subject to Corporate Tax?

The Federal Tax Authority (FTA) has outlined three primary criteria for determining which Non-residents are subject to the Corporate Tax.  You, as a non-resident, are reliable for the corporate tax in the UAE under the following categories:

• Permanent Establishment: A Permanent Establishment (PE) signifies a significant threshold of business presence. This can arise through a ‘fixed place of business PE,’ involving a stable and continuous business facility or an ‘agency PE,’ where a person or entity performs activities on behalf of the foreign company with the authority to conclude contracts. If a business’s activities exceed these thresholds,  it is deemed to have PE, which leads to tax obligations in the United Arab Emirates. Interestingly, the guide mentions that even a natural person may have PE if their turnover from business activities exceeds AED 1 million within a calendar year in the UAE.

• State-source income: Apart from Permanent Establishment (PE), you are liable for the non-resident Corporate Tax in UAE if you derive income from within this country. This profit includes income from selling goods or services within the country, rental income from the UAE property or other income sources acquired within the border of the UAE.
• Nexus with UAE real estate: If you earn from the immovable properties located in the United Arab Emirates, like buildings or land, you are subject to the UAE corporate tax regardless of holding a permanent or other source of income in the country.

Registration and Tax Return Filing 

Non-residential jurisdiction entities are required to register for corporate income tax (CIT) and get the tax registration number (TRN) if they possess a Permanent Establishment (PE) or nexus in the United Arab Emirates.  However, those people derive income solely from the UAE without PE or nexus from the corporate income tax registration.

Corporate Income Tax registration and obtaining a Tax Registration Number (TRN) are mandatory for non-resident people if the turnover linked to their permanent establishment surpasses AED 1,000,000 within the Gregorian calendar year. The following is the list of steps for the registration of non-citizen corporate tax in UAE:

1. Initially, you should obtain a Tax Registration Number (TRN) from the Federal Tax Authority to comply with the tax filing regulations.
2. After obtaining the TRN from the Federal Tax Authority (FTA), you must submit an annual tax return declaring your taxable income and paying the applicable corporate tax.

Taxable Income Calculation

When it comes to calculating your Taxable income as per the UAE tax laws for non-residents, you must consider two types of income. Below is the detail about the types of incomes for calculating taxable income:

• Gross Income: Gross income is income earned within the scope of your permanent establishment or from state-sourced activities, including income earned from immovable property.
• Deductible Expenses: expenses incurred in earning your taxable income, like business expenses, employee salaries, and depreciation costs.

By considering and analyzing these factors, you can find the actual taxable income for your corporate tax.

Key Points from FTA Guidelines for Non-Residents

After the implication of the UAE Corporate Tax on 1st June 2023, the Federal Tax Authority in the United Arab Emirates has released guidelines clarifying the  Non-Residents Corporate Tax Criteria in UAE. Below are the key points from the Federal Tax Authority (FTA) guidelines for non-residents:

1.  Juridical persons formed outside this country are subject to UAE corporate tax if they have a permanent establishment (PE), earn state-sourced income, or derive revenues from immovable property or real estate assets there.
2. If a non-resident individual or business has a permanent establishment in the UAE and generates an annual turnover of over AED 1 million, or earns income from business activities within the UAE, they will be subject to the UAE corporate tax. The guidelines provide helpful examples for understanding the tax regulations, including scenarios that involve permanent establishments (PE) and calculating taxable income.
3. Non-resident taxpayers must comply with ongoing operations, like submitting annual tax returns, paying taxes owed, and keeping accurate financial records.
4. Failure to comply with the registration and compliance process may lead to administrative penalties.
5. Mandatory registration with the Federal Tax Authority and getting a Tax Registration Number (TRN) is needed for non-resident entities meeting the criteria to avoid penalties for non-compliance.
6. Non-resident juridical persons deriving only state-sourced income without a permanent establishment or property owning in the UAE are exempt from tax registration.

The Federal Tax Authority (FTA) in the United Arab Emirates motivates taxpayers to refer to the newly published guidelines and the UAE corporate tax law for comprehensive details on corporate tax for non-residence in this country.

How Can Flyingcolour Tax Consultant Help You?

Non-residents are subject to the UAE corporate tax if they meet a few criteria. Flyingcolour Tax Consultants can help you to determine whether you must pay the UAE corporate tax. In addition, our experts can help you to calculate the taxable income. Moreover, we will help you to file corporate tax returns in the UAE.

To learn more about the Non-residents are subject to the UAE corporate tax, book a free consultation with one of the Flyingcolour team advisors, simply call +971 50 5585305 or send WhatsApp messages to +971 4 4542366. you can also drop an email to info (at) flyingcolour (dot) com.

This article was published on 25-03-2024. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent updates or changes.