The United Arab Emirates (UAE) introduced a corporate income tax (CIT) regime on June 1, 2023, which applies to all businesses and commercial activities in the UAE, except for certain exempt persons. Nonresident businesses and individuals may also be subject to CIT in the UAE, depending on the nature of their activities and the type of income they earn.
This guide provides a comprehensive overview of the UAE CIT regime for nonresidents, including the following topics:
- Who is a nonresident person for CIT purposes?
- What types of income are subject to CIT in the UAE?
- What are the different forms of permanent establishments (PEs) in the UAE, and how do they affect CIT liability?
- What are the CIT filing, registration, and recordkeeping requirements for nonresidents?
- How to calculate CIT liability for nonresidents?
- What tax reliefs and exemptions are available to nonresidents?
Who is a Nonresident Person for CIT Purposes?
A nonresident person for CIT purposes is any natural person or juridical person who is not considered a resident person for CIT purposes. A resident person is defined as a natural person who is domiciled in the UAE or a juridical person that is incorporated or established in the UAE.
Nonresident persons may be subject to CIT in the UAE on the following types of income:
- Income attributable to their PE in the UAE
- Income that is attributable to a nexus in the UAE as determined in Cabinet Decision No. 56 of 2023
- Income that is sourced in the UAE
What Types of Income Are Subject to CIT in the UAE?
The following types of income are subject to CIT in the UAE:
- Business income
- Investment income
- Other income, such as income from employment, income from real estate, and income from royalties
What Are the Different Forms of Permanent Establishments (PEs) in the UAE, and How Do They Affect CIT Liability?
A PE is a fixed place of business through which a business carries on its whole or part of its activity. The following can constitute a PE in the UAE:
- A fixed place of business, such as an office, branch, or factory
- A construction site or installation project that lasts for more than 12 months
- A supervised place of activity, such as a mining or drilling site
- An agent who has the authority to conclude contracts on behalf of the business
Nonresident businesses that have a PE in the UAE are subject to CIT on all income attributable to their PE. Income attributable to a PE includes income from the sale of goods and services, income from investments, and income from other activities carried on through the PE.
What Are the CIT Filing, Registration, and Recordkeeping Requirements for Nonresidents?
Nonresident businesses that are subject to CIT in the UAE must register with the Federal Tax Authority (FTA) and file a CIT return. The CIT return must be filed within six months of the end of the financial year.
Nonresidents must also maintain records of their income and expenses for a period of seven years. These records must be sufficient to determine the taxpayer’s CIT liability.
How to Calculate CIT Liability for Nonresidents?
The CIT rate in the UAE is 9%. However, there are a number of tax reliefs and exemptions available to businesses and individuals. For example, businesses with taxable income of less than AED 375,000 are exempt from CIT.
To calculate CIT liability, nonresidents must first determine their taxable income. Taxable income is calculated by subtracting all allowable expenses from gross income. Allowable expenses include costs incurred in the production of income, such as the cost of goods sold, salaries and wages, and rent.
Once taxable income has been determined, nonresidents must apply the CIT rate to calculate their CIT liability.
What Tax Reliefs and Exemptions Are Available to Nonresidents?
A number of tax reliefs and exemptions are available to nonresidents, including:
- Exemption for small businesses with taxable income of less than AED 375,000
- Exemption for certain types of income, such as income from dividends and income from capital gains
- Tax credits for foreign taxes paid
- Deductions for certain types of expenses, such as charitable donations and research and development expenses
The UAE CIT regime is complex and there are a number of factors that can affect a nonresident business’s CIT liability. If you are a nonresident business operating in the UAE, it is important to consult with a qualified tax advisor to ensure that you are complying with all applicable tax laws and regulations.
Here are some additional tips for nonresident businesses operating in the UAE:
- Keep accurate records of your income and expenses. This will help you to calculate your CIT liability accurately and to support any claims for tax reliefs or exemptions.
- Register with the FTA and file your CIT return on time. Failure to do so may result in penalties.
- Be aware of the different types of PEs and the nexus rules in the UAE. If you have a PE or a nexus in the UAE, you may be subject to CIT on all income attributable to that PE or nexus.
- Take advantage of the available tax reliefs and exemptions. There are a number of tax reliefs and exemptions available to nonresident businesses, which can help to reduce your CIT liability.
If you have any questions about your CIT obligations in the UAE, please consult with a qualified tax advisor.