The Ministry of Finance has issued Ministerial Decision No.43 of 2023 (‘the Decision’) dated 10 March 2023 on the exceptions from registration for UAE Corporate Tax (‘UAE CT’) for the purpose of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (‘UAE CT Law’).
The Decision provides exception to the following persons from registration for UAE CT:
a) A Government Entity;
b) A Government controlled Entity;
c) A Person engaged in an Extractive Business that meets the conditions of Article 7 of the Corporate Tax Law;
d) A Person engaged in a Non-Extractive Natural Resource Business, that meets the conditions of Article 8 of the Corporate Tax Law;
e) A Non-Resident Person that derives only State Sourced Income under Article 13 of UAE CT Law and that does not have a Permanent Establishment (PE) in the State according to the provisions of the Corporate Tax Law.
In case the above persons [from point (a) to (d) only] become a taxable person (i.e., engaging in a business or business activity), such exceptions from registration may not apply.
For non-resident persons:
► Article 11 of UAE CT Law states that a taxable person can be a non-resident person (who is not considered as a Resident person under clause 3 of Article 11) and that either:
─ Has a PE as per Article 14 of UAE CT Law
─ Derives state sourced income as per Article 13 of UAE CT Law
─ Has a nexus in the state as specified in a Cabinet decision (yet to be issued)
► The Decision seeks to provide clarity that a non-resident person does not require a UAE CT registration if it derives only State Sourced Income (i.e., UAE sourced income) under Article 13 of the UAE CT Law and does not have a PE in UAE.
► Given the above, it becomes imperative for non-residents deriving income from UAE to evaluate exposures of PE not only under the UAE CT Law, but also under the applicable Double Tax Treaties (DTTs) to be categorized under the aforesaid exception from UAE CT registration.
This is a welcome clarification for non-residents not having a PE in the UAE as it reduces the compliance burden for such non-residents under the UAE CT Law.
Currently, as per Article 45 of the UAE CT Law, a tax withholding of 0% applies to identified categories of State Sourced Income (to be specified in a Cabinet decision) derived by a non-resident, not having a PE in UAE.
Separately, while the Decision is silent on “nexus” rule, we expect more clarity by way of a Cabinet decision on the “nexus” rule, as provided in Clause 4(c) of Article 11 of UAE CT Law.
You may refer to all Cabinet Decisions and Ministerial Decisions issued relating to the UAE CT regime on Ministry of Finance’s website: www.mof.gov.ae
