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UAE clarification of Freezone Qualifying Income

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https://taxsummaries.pwc.com/united-arab-emirates/corporate/income-determinationThe following table sets out the aspects to consider when determining the nature of‌ a Taxable person (i.e. Resident vs. Non-resident) as well as the applicable Tax base:


Resident PersonTax base
  • An entity that is incorporated in the UAE (including a Free Zone‍ entity)
  • Worldwide income
  • A foreign entity that is effectively managed and controlled in the UAE⁠
  • Worldwide income
  • A natural Person / individual who conducts a Business or Business Activity in⁤ the UAE
  • Worldwide income
  • Any other person (may be determined by a Cabinet decision)
  • Worldwide income
Non-resident PersonTax base
  • Has a permanent establishment (‘PE’) in the UAE
  • Taxable income⁣ attributable to the PE
  • Derives UAE Sourced Income
  • The UAE sourced income not attributable to⁢ the PE
  • Has a Nexus in the UAE
  • Taxable income attributable to the Nexus

There are no separate capital gains provisions under the UAE CT law. Any gains/ (loss) on︀ disposal of capital assets would form part of the taxable income which would be subject︁ to 0% or 9% tax rate as the case may be.

can anybody explain this︂ "Taxable income attributable to the PE"​

 
You are taxed only income generated by the permanent establishment in UAE‌
 
Yes, but if you are resident in UAE. All income can be considered‌ generated in UAE.
 
I think the only way to know exactly what is going on is to have‌ someone on the ground who has direct relationship with freezone authorities in Dubai and that‍ person is Fred
I wonder when will he come with announcement we all been waiting⁠ for
 
Well what if you are a resident‌ in the sense that you have an Emirates Id, but you spend less than 90‍ days in the UAE?
 
If you spend less than 90 days you will not be considered UAE tax⁠ resident but i don't understand what's your point.

Actually does somebody knows how long is⁤ "time to PE" in UAE?

Becuase if time to PE > 90 days⁣ there could be a loophope right there.

I mean consider being the owner of a⁢ US LLC on a remote working visa in UAE.

You are considered UAE tax resident︀ after 90 days but if the time to consider your US LLC a UAE permanent︁ establishment is, lets say, 183 days you can game the system by leaving UAE on︂ day 91 and managing your company from [put desidered location here] being careful about not︃ triggering tax residency eleswhere.

Your passport is the proof that you stayed enought to get︄ tax residency but not long enough to create a permanent establishment.

And futher, if you︅ organize yourself in a way that you only close contracts while outside UAE you can︆ substaintiate that while in UAE you only performed activities of a preparatory or auxiliary nature.︇

https://taxsummaries.pwc.com/united-arab-emirates/corporate/corporate-residence
 
Generally speaking, the PE in UAE will be created based on︆ the DTT or UAE CT law depending on the jurisdiction, as UAE has signed and︇ ratified the BEPS Multilateral Instrument and chosen to retain the existing 'permanent establishment' definition in︈ its DTTs. It has not elected to adopt the expanded 'permanent establishment' definition.

Under the︉ UAE CT Law, the definition of a PE is aligned with the definition in the︊ OECD Model Tax Convention. UAE and US have no treaty so we have to follow︋ the local law.

In terms of the UAE CT law, a Non-Resident Person would generally︌ be considered to have a PE in the UAE where it has a fixed or︍ permanent place in the UAE through which the Business of the Non-Resident Person, or any︎ part thereof, is conducted or where a Person has and habitually exercises an authority to️ conduct a Business or Business Activity in the UAE on behalf of the Non-Resident Person.‌ This will also include cases where UAE persons exercise the authority to conclude contracts in‍ the name of the foreign entity. An additional instance is included in the UAE CT⁠ Law whereby a PE can be created where the non-resident has any other form of⁤ nexus in the UAE as specified through a subsequent Cabinet decision.

In summary, being a⁣ sole manager of the us llc like this leaves you exposed to tax in most⁢ cases.
 
Another wrinkle with having a‍ US LLC, since a US LLC is disregarded/transparent, isnt it possible that it counts in⁠ the UAE as doing business as a natural person (as opposed to a foreign juridical⁤ person) and then there is no requirement to register for CT below 1M AED turnover.⁣
 
Your're most likely correct and‍ you gave me an idea for a (probably) even better tax structure.
 
As far as I know⁤ there are no anti-hybrid rules in the UAE so it shouldn't be applicable.
 
If you spend‍ less than 90 days you cannot get tax residence certificate - it means you are⁠ not genuine UAE resident.
So no PE. It's just my opinion
 
Thanks for sharing, I hope it will be good for some businesses from this forum‍ even if I think 95% of us are not concerned
 
Due to⁠ PE regulation "non resident person" would become resident in UAE in terms of CIT
There is really no workarounds around that besides non resident has substance in foreign country (offices,⁤ employees etc)
 
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