Corporate Tax for Foreign Companies That Have Permanent Establishments in the UAE
The United Arab Emirates (UAE) has become a popular business hub in the world. Many foreign companies set up operations in this region because of its friendly environment and good opportunities. But, with all these benefits, there are also some rules and taxes you need to know about. If a foreign company has a permanent establishment (PE) in the UAE, the company must follow the UAE’s corporate tax law. In this article, let’s explore how corporate tax works for foreign companies with PEs in the UAE.
What is a “Permanent Establishment” (PE) in the UAE?
A permanent establishment (PE) is a business place in the UAE where a foreign company carries out its business. This includes places like:
- Offices or branches located in the UAE
- Warehouses, factories, or construction sites used by the company
- Installations or structures for exploring or extracting natural resources (mines, oil fields, quarries)
If a foreign company has a PE, the company must register for corporate tax in the UAE. The law says a PE does not include places used only for:
- Storing, displaying, or delivering merchandise
- Keeping goods for processing by another business
- Purchasing goods or collecting information
- Doing support or extra activities for the main business
Main Provisions for Permanent Establishments in UAE Corporate Tax Law
Foreign companies must know these important points:
- A foreign person owns a PE in the UAE if the company controls a permanent location for business there.
- If a UAE resident person can operate a business for a foreign company, that company may have a PE.
- Other forms of business links may count as a PE, as listed by Cabinet Decisions.
Foreign companies with PEs must follow UAE tax rules and register with the Federal Tax Authority (FTA).
Calculation of Corporate Tax for Foreign Companies
Foreign companies with a PE in the UAE must pay 9% corporate tax on annual taxable income over AED 375,000. This income includes money from selling goods, providing services, renting properties, or any business in the UAE.
To calculate corporate tax:
- Add all income earned by the PE in the UAE.
- Subtract eligible expenses (like salaries, rent, or business costs).
- If the net profit is more than AED 375,000, pay 9% tax on the extra amount.
Companies must register for corporate tax and submit tax returns to the FTA within 120 days of the financial year’s end.
Deductible Expenses and Documentation
Companies can reduce their tax bills by claiming eligible expenses. Deductible expenses include:
- Donations made for social purposes
- Salaries and employee benefits
- Office rent, equipment, or operational costs
- Tax credits from foreign taxes
Proper documents, like invoices and receipts, should support every expense claimed. Keeping records is very important for future audits.
Important Considerations for Foreign Companies
Foreign companies should remember:
- The PE rule applies only if the company earns income through business operations in the UAE.
- Activities for just storing or displaying goods, or extra support, may not create a PE.
- If a foreign company earns only investment income (not business profits), it may not have to register for corporate tax.
- Companies must check each business activity to see if they must pay tax.
Key Points in Bullet Form
- A PE means having a physical business place in the UAE.
- PEs must register for corporate tax with the FTA.
- Corporate tax applies only to net profits over AED 375,000.
- Expenses must have documentation for deductions.
- Companies should review business activities regularly.
How Mubarak Al Ketbi (MAK) Auditing Can Help You
Mubarak Al Ketbi (MAK) Auditing helps foreign companies manage every step of UAE corporate tax for PEs. Our expert team gives you:
- Support with registration at the Federal Tax Authority (FTA)
- Help in calculating your taxable income and claiming deductions
- Assistance with timely filing of corporate tax returns
- Compliance checks and regular advice to avoid penalties
- Friendly, personalized services for your unique needs
Don’t let the rules tie you up in knots! With MAK Auditing by your side, you’ll be on the ball and ready for anything.
For more information:
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp: +971 50 276 2132
