The introduction of Corporate Tax through Federal Decree-Law No. 47 of 2022 changed the game for businesses having clients from around the world. The law is simple: as a Taxable Person operating in the UAE, you must know precisely where your income comes from — within the UAE or abroad?

Under the new Corporate Tax law, businesses in the Emirates with profits up to AED 375,000  get taxed at 0%. Anything above that threshold gets taxed at 9%. In essence, it makes having a clear distinction between foreign-sourced and UAE-sourced income more than a technical requirement.

If a company engages in cross-border dealings, transfer pricing rules also apply. The goal of the law is to ensure businesses report their earnings transparently and are taxed fairly. A tax consultant with an understanding of Emirate laws is the best bet for businesses to avoid mistakes and keep their filings clean.

Example:

A Dubai-based logistics company that delivers services to locals generates revenue directly from the UAE. The earning is subject to Corporate Tax.

Resident vs. Non-Resident Persons for Corporate Tax

The UAE Tax law recognizes businesses based on two broad categories: resident persons and non-resident persons. It’s a classification that determines the scope of their income and how much is taxed.

Resident Persons (UAE)

A company incorporated or whose management takes place in the UAE falls under this category. The resident business pays tax on its worldwide revenue, including local and foreign earnings.

The Emirates’ 0% tax rate on qualifying income can benefit free zone entities, only if such a company meets the Qualifying Free Zone Person (QFZP) status requirements.

Example:

Any company based in Dubai with multiple international branches must report its global revene. But, for the qualifying free zone business, such global revenue may still remain at 0% rate.

Non-Resident Persons (UAE)

This category only taxes local earnings linked to a Permanent Establishment (PE) in the Emirates. When a foreign company holds assets or conducts part of its operations in the UAE, earnings from such activities become taxable.

Example:

A foreign construction firm in Dubai creates a PE while working on a building site. Whatever profit arises from the project is taxable in the UAE.

Also Read: Corporate tax consultant in Dubai 

 

Types of UAE State-Sourced Income

An income falls under “state-sourced” only when it fits any of the described categories by the Corporate Tax Law.

• Business Income

Any consulting, manufacturing, trading, or professional services rendered in the UAE count as state-sourced.

Example:

An Abu Dhabi marketing agency generates taxable local income because it serves Emirate clients.

• Sale of Goods or Services

Once a product or service generates revenue in the UAE, the law considers it state-sourced, regardless of whether the seller has a resident company or operates through a PE.

Example:

A foreign electronics supplier using a local distributor and earning income sourced in the UAE is taxable.

• Income from Contracts

Any contract fulfilled, in whole or in part, across the Emirates is taxable.

Example:

A foreign engineering company working on a part of Dubai’s metro station must report the revenue obtained as UAE-sourced.

• Movable and Immovable Property

Residents or foreigners who earn from assets such as housing, including rents, leasing revenue, or other returns, are taxable.

Example:

A non-resident leasing office space in Dubai earns rental income in the UAE.

• Shares, Dividends, and Capital Gains

Profits from selling shares or dividends paid by local companies may fall under the description as “UAE-sourced,” depending on the company’s transaction structure.

Example:

An investor (local or not) selling shares with a gain from a UE company may be subject to Corporate Tax on that transaction.

• Interest, Royalties, and Intellectual Property

If an IP asset, a payer of royalties or interest has ties in the Emirates, the income falls under UAE-sourced.

Example:

A Dubai-based software company that licenses its platform to a local business generates taxable royalty income.

• Insurance and Reinsurance Income

Suppose a “risk” being covered by insurance is in the UAE, the income is subject to the company’s rules.

Example:

A foreign reinsurer earning local income from covering risks or properties located in the UAE.

 

Summary of Common UAE-Sourced Income

A quick overview:

Category	Activities / Examples
Business Income	Local trading, consulting, services
Goods or Services	Sales or services delivered in the UAE
Contracts	Installation projects, construction, supply of products
Property	Rent, lease
Investments	Share disposals, dividends, capital gains
Royalties or IP	Trademarks, licensing patents
Insurance	Strictly risks occurring in the UAE

Compliance, Reporting, and Withholding

All business entities earning UAE-sourced income must meet the requirements of the Federal Tax Authority Corporate Tax. To avoid future run-ins with the law or accusations of tax fraud, companies must ensure proper documentation, accurate reporting, and compliance.

Important Compliance Steps:

• The correct tax rate: 0% up to AED 375,000, 9% above.
• Verify Withholding tax obligation. There’s a 0% rate for now, but cross-border payments (like royalties) may need documentation.
• Fill annual tax returns and have supporting records to back the claim.
• Keep records of contracts and financial statements for at least seven years.
• Request a qualified tax consultant to have a look at your books to avoid penalties.

Conclusion

As a business with ties to the UAE, whether through revenue or a managerial base, understanding what counts as locally sourced income is important for operating in the Emirates.

Whether from services, royalties, capital gains, or insurance, ensure you follow the tax reporting rules to avoid compliance issues. The best advice would be to work with UAE tax professionals to help you stay aligned with the Federal Decree-Law No. 47 of 2022.