Taxation of Permanent Establishment under the UAE

What?

The proposed Corporate Tax (“CT”) regime in the UAE may result in taxing foreign companies that conduct trade or business in the UAE through a Permanent Establishment (“PE”).

Whether there is a PE in the UAE, it has to be assessed based on the CT provisions in conjunction with the relevant Double Taxation Avoidance Agreement (“DTAA”).

The creation of a PE for a foreign company in the UAE will result in certain UAE tax obligations.

How can a PE be created?

1. Fixed Place PE
   • The existence of a “fixed place” through which the business is carried either wholly or partly.
   • A fixed place may include a place of management, branch, office, factory, workshop, real property, and building site where activities are carried on for over 6 months.
   • Installations and structures used in the exploration of natural resources.
2. Dependent agent PE
   • If business travelers or UAE-based persons act on behalf of the foreign company while in the UAE.
   • If such a person has, and habitually exercises, the authority to conclude contracts in the name of the foreign company.
3. [Possible] exclusion If…

• The activities carried out through the “fixed place” in the UAE are preparatory or auxiliary in nature.

• The fixed place is used only to store, display or deliver the goods or keeping a stock of goods solely for making them available to another person for processing.

• The person carries on the foreign company’s business in the UAE in the ordinary course of that person’s own business.

What happens if a PE is created?

• Triggers certain UAE tax obligations for the foreign company.

• Increased audit possibilities from tax authorities / increased tax compliance time and cost.

• Direct connection with the employee’s personal tax situation. Certain relief under the respective tax treaty may not be available to the employee's on the personal income.

How can Crowe help?

• Analyze the activities of the foreign company who is active in the UAE and evaluate the risk of PE for that foreign company.

• Advice on:

• the key factors or parameters to be considered by the foreign company to mitigate the PE risk.

• the tax-planning strategies to minimize PE exposure, including corporate restructuring, outsourcing, intercompany agreements, and secondment agreements.