Can a UAE company exempt the income of its foreign branch?

Article 24 – Foreign Permanent Establishment Exemption 1. A Resident Person can make an election to not take into account the income, and associated expenditure, of its Foreign Permanent Establishments in determining its Taxable Income. 2. Where Clause 1 of this Article applies, a Resident Person shall not take into account the following in determining its Taxable Income or Corporate Tax Payable for a Tax Period: Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 31 a. losses in any of its Foreign Permanent Establishments, calculated as if the relevant Foreign Permanent Establishments were a Resident Person under this Decree-Law; b. positive income and associated expenditure in any of its Foreign Permanent Establishments, calculated as if the relevant Foreign Permanent Establishments were a Resident Person under this Decree-Law; and c. any Foreign Tax Credit that would have been available under Article 47 of this DecreeLaw had the election under Clause 1 of this Article not been made. 3. For the purposes of this Article, “income and associated expenditure” of a Taxable Person’s Foreign Permanent Establishments for a Tax Period is the aggregate of the income and associated expenditure in each of the relevant foreign jurisdictions. 4. In determining the income and associated expenditure of a Foreign Permanent Establishment, a Resident Person and each of its Foreign Permanent Establishments shall be treated as separate and independent Persons. 5. For the purposes of Clause 4 of this Article, a transfer of assets or liabilities between a Resident Person and its Foreign Permanent Establishment shall be treated as having taken place at Market Value at the date of the transfer for the purposes of determining the Taxable Income of that Resident Person. 6. The exemption under Clause 1 of this Article shall apply to all Foreign Permanent Establishments of the Resident Person that meet the condition specified in Clause 7 of this Article. 7. The exemption under Clause 1 of this Article shall only apply to a Foreign Permanent Establishment that is subject to Corporate Tax or a tax of a similar character under the applicable legislation of the relevant foreign jurisdiction at a rate not less than the rate specified in paragraph (b) of Clause 1 of Article 3 of this Decree-Law.

Article 35 – Related Parties and Control 1. For the purposes of this Decree-Law, “Related Parties” means any of the following: a. Two or more natural persons who are related within the fourth degree of kinship or affiliation, including by way of adoption or guardianship. b. A natural person and a juridical person where: 1) the natural person or one or more Related Parties of the natural person are shareholders in the juridical person, and the natural person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty percent) or greater ownership interest in the juridical person; or 2) the natural person, alone or together with its Related Parties, directly or indirectly Controls the juridical person. c. Two or more juridical persons where: 1) one juridical person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty percent) or greater ownership interest in the other juridical person; 2) one juridical person, alone or together with its Related Parties, directly or indirectly Controls the other juridical person; or 3) any Person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty percent) or greater ownership interest in or Controls such two or more juridical persons. d. A Person and its Permanent Establishment or Foreign Permanent Establishment. e. Two or more Persons that are partners in the same Unincorporated Partnership. f. A Person who is the trustee, founder, settlor or beneficiary of a trust or foundation, and its Related Parties. 2. For the purposes of this Decree-Law, “Control” means the ability of a Person, whether in their own right or by agreement or otherwise to influence another Person, including: a. The ability to exercise 50% (fifty percent) or more of the voting rights of another Person. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 42 b. The ability to determine the composition of 50% (fifty percent) or more of the Board of directors of another Person. c. The ability to receive 50% (fifty percent) or more of the profits of another Person. d. The ability to determine, or exercise significant influence over, the conduct of the Business and affairs of another Person.

12.3.3. Exempt Income: Foreign Permanent Establishment As noted in Section 4.4.3, the Foreign Permanent Establishment exemption is available if the following conditions have been satisfied: • Foreign Permanent Establishment is subject to Corporate Tax at a rate of not less than 9% (i.e. 10% in Country E).189 • No Tax Loss from the Foreign Permanent Establishment has previously been utilised.190 As the above conditions are satisfied, Company A has elected for the Foreign Permanent Establishment exemption in relation to Branch E. Accordingly, the income and associated expenditure of Branch E must be calculated as if Branch E is a separate and independent Business in accordance with internationally accepted profit attribution methods, such as the separate entity approach, and any transactions which take place between Branch E and its head office or Related Parties (Company B in this case) must be treated as having taken place at Market Value.191 Thus, the cost of the free products referred to above, having a Market Value of AED 2,000,000, should be included as a cost in the hands of the Foreign Permanent Establishment (Branch E). Such income and associated expenditure should then be excluded from Company A’s Accounting Income in the determination of its Taxable Income. Thus, as Company A has elected to apply the Foreign Permanent Establishment Exemption, the Accounting Income, i.e. exempt income of AED 5,260,000 (being Accounting Income of AED 7,260,000 less the transfer pricing adjustment of AED 2,000,000) of the Foreign Permanent Establishment should be excluded while determining the Taxable Income of Company A. Thus, net income (that is treated as Exempt Income) of the Foreign Permanent Establishment of AED 5,260,000 is deducted when determining the Taxable Income of Company A. 12.3.4. Foreign Tax Credit As noted in Section 4.4.3, making an election for the Foreign Permanent Establishment exemption means that no Foreign Tax Credit is available.192 Accordingly, no credit for taxes paid of AED 726,000 in Country E with respect to the Foreign Permanent Establishment, i.e. Branch E, will be available to Company A in the UAE. 189 Article 24(7) of the Corporate Tax Law. 190 Article 13(1) of Ministerial Decision No. 116 of 2023. 191 Article 24(4), (5) and Article 35(1)(d) of the Corporate Tax Law. 192 Article 24(1) and (2)(c) of the Corporate Tax Law. Corporate Tax Guide | Determination of Taxable Income | CTGDTI1 99