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The Federal Tax Authority (FTA) has clarified the criteria for determining Non-Residents subject to Corporate Tax in the UAE; the instances that require registration of a Non-Resident for Corporate Tax purposes; Taxable Income and how it is calculated; as well as other requirements for compliance by Non-Residents subject to the Corporate Tax Law, which took effect on 1st June 2023.
The FTA included a comprehensive and simplified explanation, along with general guidance in its guide, for Non-Resident Persons, whether natural persons (individuals) or juridical persons (including public and private corporations) who derive income in the UAE, to help them determine whether they are subject to Corporate Tax.
In a press release issued today, the FTA invited all Non-Resident Persons concerned, who derive income in the UAE, or those who conduct Business or part of their Business in the UAE to consult the new guidelines and refer to the Corporate Tax Law and relevant implementing Decisions as well as any other guides published on the FTA website.
The FTA emphasised the importance of reading the manual in its entirety to gain a clear understanding of its content, definitions, and interactions between its comprehensive rules. The manual includes numerous simplified practical examples to clarify how the key elements of the Corporate Tax system apply to Non-Resident natural and juridical persons.
According to the guide, a Non-Resident Person is subject to Corporate Tax in specific cases, two of which apply to a natural person. The first case is where a natural person has a Permanent Establishment in the UAE and has a Turnover attributable to their Permanent Establishment that exceeds AED 1 million during a given calendar year. The second case is where they derive State-Sourced Income (income accruing in, or derived from the UAE according to the Corporate Tax Law).
The guide clarified that, a juridical person that is incorporated or formed outside the UAE and not effectively managed and controlled in the UAE is subject to Corporate Tax in three cases. Firstly, a juridical person is subject to Corporate Tax if they have a Permanent Establishment in the UAE, which any fixed place of Business or any other form of presence in the UAE. Secondly, a juridical person is subject to Corporate Tax if they derive State-Sourced Income (income accruing in or derived from the UAE according to the Corporate Tax Law). Thirdly, a juridical person is subject to Corporate Tax if they have a nexus in the UAE, meaning if they earn income from Immovable Property in the UAE, such as a plot of land, a building, fixtures, or equipment that constitute a permanent part of the land or is permanently attached to a building or structure.
In this guide, the FTA stated that Non-Resident Persons that are juridical person are required to register for Corporate Tax purposes and obtain a Tax Registration Number (TRN) where they are subject to Corporate Tax due to having a Permanent Establishment, or a nexus in the UAE; i.e. meaning if they derive income from Immovable Property in the UAE, to avoid any compliance delays that may result in administrative penalties.
Furthermore, the guide clarified that Corporate Tax registration is not required for Non-Resident juridical persons who derive only State-Sourced Income and have neither a Permanent Establishment in the UAE nor a nexus in the UAE.
In addition, a Non-Resident natural person is required to register for Corporate Tax purposes and obtain a TRN if they have a Turnover attributable to their Permanent Establishment in the UAE that exceeds AED 1 million within a calendar year.
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