What is a permanent establishment for UAE Corporate Tax?

Article 14 – Permanent Establishment 1. A Non-Resident Person has a Permanent Establishment in the State in any of the following instances: a. Where it has a fixed or permanent place in the State through which the Business of the Non-Resident Person, or any part thereof, is conducted. b. Where a Person has and habitually exercises an authority to conduct a Business or Business Activity in the State on behalf of the Non-Resident Person. c. Where it has any other form of nexus in the State as specified in a decision issued by the Cabinet at the suggestion of the Minister. 2. For the purposes of paragraph (a) of Clause 1 of this Article, a fixed or permanent place in the State includes: a. A place of management where management and commercial decisions that are necessary for the conduct of the Business are, in substance, made. b. A branch. c. An office. d. A factory. e. A workshop. f. Land, buildings and other real property. g. An installation or structure for the exploration of renewable or non-renewable natural resources. h. A mine, an oil or gas well, a quarry or any other place of extraction of natural resources, including vessels and structures used for the extraction of such Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 19 resources. i. A building site, a construction project, or place of assembly or installation, or supervisory activities in connection therewith, but only if such site, project or activities, whether separately or together with other sites, projects or activities, last more than (6) six months, including connected activities that are conducted at the site or project by one or more Related Parties of the NonResident Person. 3. Notwithstanding Clauses 1 and 2 of this Article, a fixed or permanent place in the State shall not be considered a Permanent Establishment of a Non-Resident Person if it is used solely for any of the following purposes: a. Storing, displaying or delivering of goods or merchandise belonging to that Person. b. Keeping a stock of goods or merchandise belonging to that Person for the sole purpose of processing by another Person. c. Purchasing goods or merchandise or collecting information for the NonResident Person. d. Conducting any other activity of a preparatory or auxiliary nature for the NonResident Person. e. Conducting any combination of activities mentioned in paragraphs (a), (b), (c) and (d) of Clause 3 of this Article, provided that the overall activity is of a preparatory or auxiliary nature. 4. Clause 3 of this Article shall not apply to a fixed or permanent place in the State that is used or maintained by a Non-Resident Person if the same Non-Resident Person or its Related Party carries on a Business or Business Activity at the same place or at another place in the State where all of the following conditions are met: a. Where the same place or the other place constitutes a Permanent Establishment of the Non-Resident Person or its Related Party. b. The overall activity resulting from the combination of the activities carried out by the Non-Resident Person and its Related Party at the same place or at the two places is not of a preparatory or auxiliary nature and together would form a cohesive Business operation, had the activities not been fragmented. 5. For the purposes of paragraph (b) of Clause 1 of this Article, a Person shall be Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 20 considered as having and habitually exercising an authority to conduct a Business or Business Activity in the State on behalf of a Non-Resident Person if any of the following conditions are met: a. The Person habitually concludes contracts on behalf of the Non-Resident Person. b. The Person habitually negotiates contracts that are concluded by the NonResident Person without the need for material modification by the NonResident Person. 6. The provisions of Paragraph (b) of Clause 1 of this Article shall not apply where the Person conducts a Business or Business Activity in the State as an independent agent and acts for the Non-Resident Person in the ordinary course of that Business or Business Activity, unless the Person acts exclusively or almost exclusively on behalf of the Non-Resident Person, or where that Person cannot be considered legally or economically independent from the Non-Resident Person. 7. For the purposes of Clause 3 of this Article, the Minister may prescribe the conditions under which the mere presence of a natural person in the State does not create a Permanent Establishment for a Non-Resident Person in any of the following instances: a. Where such presence is a consequence of a temporary and exceptional situation. b. Where the natural person is employed by the Non-Resident Person, and all of the following conditions are met: 1) The activities being conducted in the State by the natural person are not part of the core income-generating activities of the Non-Resident Person or its Related Parties. 2) The Non-Resident Person does not derive State Sourced Income.

In instances where there is an in-force Double Taxation Agreement between the UAE and that other jurisdiction, this agreement will, in general, contain provisions to determine where that Person would be considered as resident. These provisions take precedence over the treatment under the Corporate Tax Law and its implementing decisions.19 In general, Double Taxation Agreements include rules to solve dual residence situations for juridical persons either based on the place of effective management criterion or through the mutual agreement procedure. Non-Resident Taxable Persons A juridical person is subject to Corporate Tax if it is not a Resident Person under the conditions above, but either: • has a Permanent Establishment in the UAE; or20 • derives State Sourced Income (subject to a 0% Withholding Tax); or21 • earns income from Immovable Property in the UAE.22 5.4.1. Non-Resident Person with a Permanent Establishment in the UAE The concept of a Permanent Establishment is used in tax regimes across the world to determine if and when a foreign juridical person has established sufficient presence in a country to warrant the direct taxation of their profits in that country. Generally, a country only has the right to tax the profits of a foreign business if that business has a Permanent Establishment in that country. A Non-Resident Person may have a Permanent Establishment in the UAE if: • • they conduct a Business through a fixed or permanent place in the UAE.23 This could for example include an office, a factory or a building site lasting for more than 6 months where the Business is wholly or partly conducted; or another Person has and habitually exercises an authority to conduct a Business or Business Activity in the UAE on behalf of the Non-Resident Person.24 This includes situations where the Person concludes contracts in the UAE on behalf of the Non-Resident Person or negotiates contracts without the need for any 19 Article 66 of the Corporate Tax Law. 20 Article 11(4)(a) of the Corporate Tax Law. 21 Article 11(4)(b) of the Corporate Tax Law. 22 Article 11(4)(c) of the Corporate Tax Law and Article 2(1) of Cabinet Decision No. 56 of 2023. 23 Article 14(1)(a) of the Corporate Tax Law. 24 Article 14(1)(b) of the Corporate Tax Law. General Corporate Tax Guide | Corporate Tax | CTGGCT1 28