Understanding Corporate Tax for Non-Residents in the UAE

As one of the fastest-growing economies in the region, the United Arab Emirates continues to be a global business destination for non-resident entrepreneurs, offering a solid platform for expansion and success.

The country is widely known as a global leader and a tax-friendly nation. As per Federal Decree-Law No. 47 of 2022, the UAE introduced Corporate Tax on 1 June 2023 for non-resident or resident individuals earning income from the UAE.

Resident persons are:

• Natural persons running a business in the UAE.
• Juridical persons incorporated under UAE law or controlled and managed within the UAE (including Free Zone entities).

Non-resident persons are individuals or entities that lack UAE residency and:

• Have a Permanent Establishment (PE) in the UAE.
• Earn income from the UAE.
• Have a Nexus within the UAE.

On November 06, 2023, the UAE Federal Tax Authority (FTA) issued a Corporate Income Tax (CIT) guide for non-resident individuals to understand their tax responsibilities. This is a worthwhile guide in giving a clear idea of the criteria for corporate tax in the UAE for businesses. From the FTA, the guide explains the corporate tax rules in the UAE for non-residents clearly and simply.

Who qualifies as a non-resident person?

A non-resident person is an individual or business that does not reside in the UAE but is involved in a particular revenue generating business activity in the UAE under the UAE Corporate Tax Law. This term applies to foreign companies and individuals earning income sourced from the UAE.

To qualify as a non-resident in the UAE, the following factors need to be considered:

• The business is not legally registered or incorporated in the UAE.
• The business is not effectively managed and controlled from the UAE.
• A natural person who does not reside in the UAE for more than 183 days in a calendar year.

There are three core main criteria for identifying which non-residents are obliged to pay Corporate Tax in the UAE. As a non-resident, you are eligible for the corporate tax in the UAE.

1. Permanent Establishment: A non-resident may be deemed to be a PE if it maintains a fixed place of business or engages in significant business activities in the UAE.
2. State source income: Income derived from the UAE, whether from business activities or contracts, could fall under the UAE’s corporate tax
3. UAE real estate nexus: Income earned from immovable properties such as land and buildings within the UAE is subject to UAE corporate tax.

Key Criteria for Non-resident Corporate Tax Registration Requirement in the UAE

Non-resident entities are obliged to register for UAE Corporate tax and secure a Tax Registration Number (TRN) if they carry out business in the UAE through a Permanent Establishment (PE) or nexus in the UAE.

Those earning income without having PE or nexus are not required to register for corporate tax in the UAE.

UAE’s Corporate tax registration is necessary for non-resident individuals if their annual turnover (gregorian calendar year) from UAE Permanent Establishment generates over AED 1 million. The non-resident person must complete essential steps to stay compliant with UAE corporate tax law:

• Obtain a Tax Registration Number from the UAE’s FTA if you have a PE or nexus in the UAE.
• After registration, submit your annual corporate tax return in the UAE, declaring taxable income and settling any tax obligations.

Corporate Tax Compliance Guidelines for Non-Residents in the UAE

The registrant person is required to register for UAE corporate tax and must prepare separate financial statements that comply with UAE accounting standards – International Financial Reporting Standards.

After UAE corporate tax registration, non-resident individuals in the UAE must submit their corporate tax return filing to the UAE’s  FTA and settle any liabilities within nine months following the tax period. They must keep all required documents and records for seven years to comply with UAE corporate tax regulations.

Corporate Tax Rate for Free Zone Entities in UAE

For entities qualifying as Free Zone Persons in the UAE, the applicable tax rates are:

• 0% tax on Qualifying Income
• 9% tax on Non-Qualifying Taxable Income

Non-resident juridical entities operating in the UAE through a branch may be eligible for the 0% tax rate under the UAE’s Free Zone tax framework.

Record-Keeping and Tax Filing Duties for Non-Resident Businesses in the UAE

Non-resident businesses in the UAE must ensure the following:

• Retention of accurate financial records for no less than seven years.
• Submission of tax returns within nine months of the close of their fiscal year (Taxable Non-Resident PE).

Non-compliance with these requirements could result in penalties for UAE’s non-residents.

Non-Resident Tax Exemptions and Relief for UAE business

While Small Business Relief does not apply to non-residents, they can benefit from exemptions on income earned from operating ships or aircraft in international transportation in the UAE.

These exemptions are available if:

• The non-resident is involved in the international transport of passengers, goods, or merchandise.
• The non-resident leases or charters aircraft or ships for international transportation.

Further, the above exemption is available only if a similar reciprocal relief is available to UAE resident businesses in the home country jurisdiction of the non-resident person.

UAE Corporate Tax: Non-Resident Income Calculation

Non-residents in the UAE must evaluate two key elements to compute their taxable income:

• Total Gross Earnings: Includes income from a UAE-based Permanent Establishment or other UAE-source income like rent from immovable property or commercial activities.
• Allowable Deductions: Costs incurred in generating income, such as staff salaries, operational expenses, and asset depreciation.

The net result of gross income minus deductible expenses gives the taxable income.

UAE Corporate tax Filing Requirement for Non resident

Compliance with UAE corporate tax return filing is mandatory for all non-resident taxpayers in the UAE.

The Key corporate tax filing requirements in Dubai, UAE, are as follows

• Maintain accurate records: Non-resident persons in Dubai, UAE, must maintain proper financial records for a minimum of 7 years to adhere to UAE’s corporate tax compliance and audit requirements by the UAE’s FTA.
• Timely Filing return: Non-residents in the UAE must file a corporate tax return through the UAE’s FTA portal within the stipulated deadline. Late submission can cause severe penalties.
• Calculation of corporate tax: To calculate taxable income, non-residents must deduct all permissible business expenses from their total UAE-sourced income. The result determines the Corporate Tax payable in the UAE.
• Settle Tax payment: Once the corporate tax return is submitted, promptly pay the applicable UAE corporate tax through the FTA portal.

Penalties for Non-Residents Not Complying with UAE Corporate Tax

Non-residents must comply with UAE corporate law as it is crucial to avoid penalties.

• Missed registration: A fine of AED 10,000 applies for late corporate tax registration, with increased penalties for repeated violations.
• Late Filing Penalty: A fine of AED 500 for the first 12 months, increasing to AED 1,000 per month for ongoing delays, with possible further investigation.
• Unpaid Tax penalty: A 14% annual interest is charged monthly on overdue amounts, starting from the due date until the balance is fully paid.

Jaxa, the best corporate tax consultant in the UAE and FTA approved Tax Agent, assist non-residents as well as residents to ensure accurate registration, timely filing returns by meeting the deadlines, all while adhering to UAE corporate tax compliance.

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