Demystifying Permanent Establishment (PE) in the UAE's Corporate Tax Landscape
The UAE’s corporate tax regime, implemented in June 2023, introduced a new layer of complexity for businesses operating in the region. A crucial concept within this system is the definition of a Permanent Establishment (PE), which determines whether a non-resident company is liable to pay corporate tax in the UAE.
This blog aims to shed light on PEs in the UAE’s corporate tax framework, helping businesses navigate their tax obligations.
What is a Permanent Establishment (PE)?
A PE refers to a fixed place of business through which a non-resident company conducts all or part of its business activity within the UAE. If a non-resident company has a PE in the UAE, its taxable profits attributable to that PE become subject to UAE corporate tax (currently set at 9%).Types of Permanent Establishments in the UAE
The UAE’s corporate tax law adopts the definition of PE as outlined in the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. Here are some common types of PEs:- Branch Office: A physical location in the UAE where the non-resident company conducts its business activities.
- Agency: A person in the UAE who habitually concludes contracts on behalf of the non-resident company. (Excludes independent agents acting in the ordinary course of business)
- Construction Site or Installation Project: If the project lasts for more than six months in the UAE, it can be considered a PE.
Activities not constituting a PE
- Maintaining a bank account or purchasing goods in the UAE.
- Supervising or collecting information for the non-resident company.
- Carrying on preparatory or auxiliary activities (e.g., advertising, market research)
Importance of PE Determination
Understanding PE classification is crucial for non-resident companies operating in the UAE. Companies with a PE in the UAE will need to:
- Register for UAE corporate tax.
- Maintain proper accounting records for their UAE PE activities.
- File corporate tax returns and pay any taxes due on their UAE taxable profits.
The UAE’s corporate tax regime is still evolving. Staying updated on any changes or clarifications related to PEs issued by the Federal Tax Authority (FTA) is essential.
Understanding Permanent Establishments plays a vital role in navigating the UAE’s corporate tax landscape for non-resident companies. By familiarizing yourself with the PE definition, its types, and the importance of seeking professional guidance, you can ensure your business operates in compliance with the regulations and avoids any potential tax liabilities.