Non-resident persons in the UAE may encounter several issues when it comes to compliance with corporate tax (CT) and transfer pricing (TP) regulations. Here are some typical challenges they may face:

Determination of tax residency:

Non-resident persons need to determine their tax residency status in the UAE to understand their tax obligations. This determination depends on various factors, such as the number of days spent in the UAE, the existence of a permanent establishment, and the applicable double tax treaties.

Permanent establishment (PE) rules:

According to Article 14 – Permanent Establishment of UAE Corporate Tax Law, Income attributable to PE of Non-Resident is taxable at 9%. If the Non-Resident has a PE in the UAE then the PE is subject to CT on the profits attributable to that PE. Determining the existence of a PE can be complex and may require a careful analysis of the business activities conducted in the UAE.

Tax registration and compliance:

Non-resident persons with a tax liability in the UAE should register for tax purposes and fulfils their compliance obligations. This includes filing tax returns, maintaining appropriate accounting records, and adhering to tax payment deadlines.

Need to Ensure Arm’s Length Principle for the transactions with Related Parties:

According to Article 34 – Arm’s Length Principle of UAE Corporate Tax Law, every transaction with related parties and payments to connected persons need to ensure arm’s length principle. Payments by PE in UAE to its foreign related parties needs to ensure arm’s length principle.

TP compliance and adjustments:

According to Article 55 – Transfer Pricing Documentation of UAE Corporate Tax, every person who exceeds the limits prescribed by the minister, have to maintain the documentation to substantiate the arm’s length principle.

Non-resident persons may face challenges in aligning their TP policies with UAE regulations. They should ensure that their intercompany transactions are conducted at arm’s length prices and be prepared to justify their TP positions in case of scrutiny by tax authorities. TP adjustments may be required if transactions are not conducted in accordance with the arm’s length principle.

Double taxation relief:

Non-resident persons may encounter issues related to double taxation, especially if they are subject to tax in both the UAE and their home country. It is crucial to explore available double tax treaties, if applicable, to mitigate the impact of double taxation and claim relief or credits based on the treaty provisions.

Example:

ABC Pte Ltd. is a citizen of Singapore and conducts business activities in the UAE. ABC Pte Ltd. generates income from his UAE operations, which is subject to tax in both the UAE and Singapore. If there is no double tax treaty, ABC Pte Ltd would face the risk of double taxation, where the same income is taxed twice.

As there is a double tax treaty in place between the UAE and Singapore. The treaty provides provisions to mitigate double taxation and allows for relief or credits to be claimed by ABC Pte Ltd.

Taxation of Real Estate Income

Non-resident juridical persons will be subject to corporate tax on income earned from real estate and other immovable property in the UAE. Immovable property held in UAE for Investment purposes will also be taxable. The corporate tax treatment of income derived from UAE real estate and other immovable property by foreign juridical persons stipulates that income derived