Is income from a foreign branch taxed in the UAE?

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 3 – Corporate Tax Rate 1. Corporate Tax shall be imposed on the Taxable Income at the following rates: a. 0% (zero percent) on the portion of the Taxable Income not exceeding the amount specified in a decision issued by the Cabinet at the suggestion of the Minister. b. 9% (nine percent) on Taxable Income that exceeds the amount specified in a decision issued by the Cabinet at the suggestion of the Minister. 2. Corporate Tax shall be imposed on a Qualifying Free Zone Person at the following rates: a. 0% (zero percent) on Qualifying Income. b. 9% (nine percent) on Taxable Income that is not Qualifying Income under Article 18 of this Decree-Law and any decision issued by the Cabinet at the suggestion 1 Definition added as per Federal Decree-Law No. 60 of 2023. 2 Definition added as per Federal Decree-Law No. 60 of 2023. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 8 of the Minister in respect thereof. 3. Without prejudice to the provisions of Clauses (1) and (2) of this Article, the Cabinet at the suggestion of the Minister shall issue a decision regulating all cases, provisions, conditions, rules, controls, and procedures for imposing the Top-up Tax on Multinational Enterprises and the exemptions therefrom, so that the total percentage of the effective tax imposed on them is (15%) fifteen percent. 3 Chapter Three – Exempt Person

Example 8: Related Party transactions (transfer of assets and repatriation of funds) Company A (a company incorporated and resident in the UAE) has set up a clothesmanufacturing unit (branch office) in Country B which constitutes a Foreign Permanent Establishment. It also has a subsidiary, Company U, which is a company incorporated and resident in Country U. To enhance clothes manufacturing, machinery is transferred from Company U to Company A’s Foreign Permanent Establishment in Country B. At the end of the Tax Period the Foreign Permanent Establishment repatriates its profit to its head office i.e. Company A. Whilst legally the Foreign Permanent Establishment is part of Company A, for Corporate Tax purposes it is treated as a separate and independent Person which is related to the head office and any other Related Party of the head office. Thus, when determining the profit which could benefit from the Foreign Permanent Establishment exemption, the transfer of the asset from Company U to the Foreign Permanent Establishment of Company A must be in line with the arm’s length principle. The repatriation of surplus funds from the branch in Country B to its head office in in the UAE is receipt of own funds by Company A since branch and head office are the same legal person. Hence, the repatriation transaction is not a taxable event from the perspective of Company A and is ignored for Corporate Tax purposes. This is the case whether or not an election has been made for the Foreign Permanent Establishment exemption. 7.3. Determining Corporate Tax Payable The Corporate Tax Law does not prescribe any separate Corporate Tax rates for foreign source income. Thus, foreign source income is aggregated with all other income when determining Taxable Income. For a Taxable Person, other than a Qualifying Free Zone Person, the applicable rates currently are:64 • 0% for Taxable Income up to and including AED 375,000; and • 9% for Taxable Income exceeding AED 375,000. Where a Taxable Person has paid foreign tax in another jurisdiction, a tax credit may be available.65 Refer to Section 8 for details. 64 Article 3(1) of the Corporate Tax Law. 65 Article 47 of the Corporate Tax Law. Corporate Tax Guide | Taxation of foreign source income | CTGFSI1 34