Taxable Person

Who is a Non-Resident Person?

A Non-resident person is a Person who is not a Resident person as mentioned above and is someone who either,

NON – RESIDENT

• Has a Permanent establishment in the UAE
• Derives state sourced income (Ref: Q No:10)
• Whose business has a nexus with the UAE which will be specified by a Cabinet Resolution

What incomes of these persons are subject to Corporate Tax?

INCOME APPLICABLE TO CT

A Resident Natuaral Person

• Income earned from a business activity within the UAE
• Revenue generated outside of the UAE in connection with a business or commercial venture operated in the UAE.

A Resident Legal Person

• Income derived from inside or outside UAE, subject to several conditions

A Non-Resident Legal Person

• Income of a Permanent establishment inside UAE.
• ‘State Sourced income’ not attributable to the PE in the UAE. Income attributable to the nexus of the persons as determined by a decision taken by the cabinet.

Our Comments: It is to be noted that a foreign legal entity that is managed and controlled in the UAE would be considered a resident person, and their worldwide income may be subject to taxation in the UAE.

How can a Non-resident person have a Permanent establishment in the UAE?

A non-resident individual is considered to have a permanent establishment in the UAE in the following scenarios:

• When they possess a permanent physical location through which they carry out their business, either in full or in part.
• When they have an individual who regularly acts on their behalf to conduct business and that individual is not an autonomous representative.
• When they have any other type of connection as defined in a cabinet resolution.

What does fixed or permanent place in the state mean?

A permanent establishment can encompass a management location, branch, office, factory, workshop, land, building, real estate, facility for the exploration of natural resources such as oil, gas, minerals, or any other site where natural resources are extracted.

Additionally, it may also encompass a construction site, building project, assembly or installation site, or supervisory activities related thereto, as long as it lasts for a period exceeding 6 months.

What is a ‘State Sourced income’ earning which the Non-resident persons are taxable?

‘State-sourced income’ refers to any revenue earned by a non-resident individual that stems from:

• A resident person
• Again, if it can be attributed to their permanent establishment in the UAE
• Activities performed, assets located, capital invested, rights used, or services provided or utilized in the UAE
• Sales of goods within the UAE
• The provision of services that are rendered, utilized, or benefited from in the UAE
• Contracts that are wholly or partially performed or benefited from in the UAE
• Moveable or immovable property within the UAE
• Disposal of shares or disposal of unincorporated capital of a resident person
• The provision of use or rights to use of any intellectual or intangible property within the UAE
• Interest income received

Does taxable person include unincorporated partnership firms?

An unincorporated partnership firm shall not be considered as a taxable person in its own right. Persons managing a business enterprise as an unincorporated partnership firm shall be always treated as individual taxable persons.

State-sourced income also includes:

• Revenues secured by movable or immovable property in the UAE, obtained from a resident borrowerRevenues obtained from a borrower who is a government entity
• Insurance or reinsurance premiums received, including:

1. From insuring assets located in the UAE
2. From insuring a resident individual
3. From insuring activities conducted in the UAE.

How will the profit/taxable income earned by the unincorporated partnership firm be divided among its partners for tax?

The distribution of assets, liabilities, income, and expenditures of an unincorporated partnership shall be based on each partner’s share of the partnership. This amount may be determined by the Federal Tax Authority if the partner’s share cannot be determined. Furthermore, a partner’s direct expenses and interest on capital contributions related to the partnership’s business can be considered as deductible expenses. If desired, the partnership may apply to the Federal Tax Authority for the Unincorporated Partnership to be recognized as a taxable entity. For foreign partnerships, they will only be treated as an Unincorporated Partnership if it is exempt from taxation under the laws of its country of formation. Each partner will be individually responsible for paying taxes on their share of the partnership’s income.

How is a family foundation taxed under the law?

A family foundation established under the laws of the UAE may be considered a Resident-person for tax purposes, while those formed under the laws of another state may be treated as Non-resident persons. However, the family foundation may apply to the Federal Tax Authority to be taxed as an unincorporated partnership. The beneficiaries would be taxed according to their share of interest. To apply for this exemption, the family foundation must meet certain requirements outlined in the Corporate Tax Act.