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How Does Corporate Tax UAE Apply to State-Sourced Income?

The UAE Corporate Tax Law was issued through the Federal Decree-Law No. 47 of 2022 regulating the taxation of businesses and corporations. The Corporate Tax structure was established on top international standards to encourage investors and to make sure the legal foundations are well-known and comprehended. Additionally, reflecting the diversity of the UAE's economic system and the significance of promoting sustainable growth, the ideals of justice and parity across sectors stood at the leading edge of the Corporate Tax in UAE regime's creation. To do this, the Ministry engaged relevant parties through a public consultation process and incorporated comments and suggestions into the Corporate Tax regime's final design.

Corporate Tax on State-Sourced Income

Underneath are the types of incomes considered state-sourced incomes:

  1. When it is a Resident Person's descendant.
  2. When it comes from a non-resident individual and the income received was accrued or paid in connection with and related to that individual's permanent establishment in the State.
  3. When it alternatively arises from operations carried out, assets maintained, funds invested, rights utilized, or services rendered or obtained in the State.

Moreover, State Sourced Income includes the following, without limitation: 

  • Income from the sale of goods in the State is subject to any requirements and limitations that the Minister may designate.
  • Profits from the sale of goods or services that are consumed or used within the State.
  • Income from a contract that has been fully or partially fulfilled in the State or from which the State has benefited.
  • Profits from real estate in the State, whether moveable or immovable.
  • Profits from the sale of a resident person's stock or other assets.
  • Profits from the use, ownership, or granting of authorization to utilize any intellectual or intangible property in the State.
  • Interest that satisfies any of the criteria below:
    1.  In the State, either movable or immovable property is used to secure the loan.
    2. The borrower is an inhabitant.
    3.  The borrower is an official body.
  • Premiums for insurance or reinsurance in any of the following situations:
    1. The covered asset is situated in the State, for starters.
    2. The insured individual is a resident.
    3. The State is where the insured activity is carried out.

Read More : How Will Individuals Be Subject to Corporate Tax in the UAE?

Under the UAE Corporate Tax, who is a resident person?

A legal entity formed in the UAE is regarded as a Resident Person, according to the UAE Corporate Tax law. The term "Resident Person" refers to both legal and natural individuals who are engaged in business or economic activity in the UAE (either directly or via an unincorporated partnership).

In the UAE Corporate Tax, Who Qualifies as a Non-resident Person?

For corporation tax in UAE, legal entities and individuals who do not meet the criteria for residential individuals shall be regarded as non-resident entities. The aforementioned will be liable to the UAE company tax for non-resident individuals:

  • Income sourced in the UAE and taxable income from their permanent establishment there

What Does the Term "Permanent Establishment" Mean?

The OECD Model Tax Convention's Article 5 serves as the foundation for the Permanent Establishment idea of corporate tax in UAE. The purpose of the Permanent Establishment idea is to assess whether a corporation has a sufficient presence abroad. A jurisdiction can often tax the business revenues of a foreign corporation if it holds a Permanent Establishment there. The preceding two tests are used to evaluate if a foreign corporation has a permanent establishment in the Emirates:

  • Test of dependent agents
  • Test for a fixed place of business

Choose the Best Corporate Tax Consultation in UAE!

It is highly essential for UAE corporations (taxable persons) to seek expert consultation from reputable tax consultant in UAE to establish the basic framework of the newly issued corporate tax statute. Compliance with the set Federal Tax Authority standards and regulations is compelled upon registered businesses, thus top corporate tax consultants in UAE can effectively guide businesses to stay compliant and to avert any probable risk of incurring penalties for noncompliance. So, contact us at Corporate Tax UAE and we shall be happy to assist you!   

Read More : UAE’s New Corporate Tax Policy on Entities – An Overview

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.