Khaleej Times, Monday, Jan 09, 2023 | Jamadi Al Thani 16, 1444
UAE sourced income and application of corporate tax on it
Emirates:
In our previous articles, we have discussed the income of the non-resident
person would be subject to tax if the income pertains to the permanent
establishment (PE) of the non-resident person in the UAE, it is UAE-sourced
income or the income has been derived through the nexus, the non-resident person
has in the UAE. The question arises, what are UAE-sourced income, PE, and nexus
of non-resident person in the UAE? In this article, we have discussed the
UAE-sourced income, and in our upcoming articles, we will discuss the others.
Article 13 of the UAE corporate tax law covers the UAE-sourced income, and the
article categorises such income into three categories.
In the first category, the law describes that if the person is earning any
income from the resident person, it will be considered UAE-sourced income. We
have already discussed that the resident person includes the juridical person
incorporated or otherwise established or recognised in the UAE, the juridical
person incorporated or otherwise established or recognized out of the UAE but
controlled and managed in the UAE, the natural person who conducts business or
business activity in the UAE or any other person defines in the cabinet
decision. So, if the income is earned from these persons, it will be considered
UAE-sourced income.
For example, P Ltd is registered in Australia, but the management of P Ltd is
based in the UAE, from where all decisions are being taken related to P Ltd, so
it will be assumed that P Ltd is a resident person in the UAE for corporate tax
purposes. if the USA company is providing any goods/services to P Ltd, and
earning any income, then as per the provision of the UAE CT law, the income of
the USA company earned from P Ltd, will be subject to tax in the UAE.
In the second category, the law says that the income derived from a non-resident
person and connected with or attributable to a PE of that non-resident person in
the UAE shall be considered UAE-sourced income. In this income class, the
connectivity of the income with the PE of a non-resident person is critical. If
the income is not attributable to the PE of a non-resident person in the UAE, it
will not be considered UAE-sourced income.
For example, a UK-based company (UKB Ltd) has a branch in the UAE, and an
Italian supplier is supplying the services to the UAE branch of a UKB Ltd but
getting the amount against this supply of services from the UKB Ltd. The income
derived by the Italian supplier from the UKB Ltd will be taxable in the UAE, as
this income pertains to or is attributable to the UAE branch of the UKB Ltd. If
the same supplier provides services to any non-UAE branch of UKB Ltd, it will be
out of the scope of the UAE CT law, as the company is not established in the UAE
or controlled and managed in the UAE in case of a juridical person registered
out of the UAE.
In the third category, UAE CT law says that activities like the sale of goods,
provision of services, execution, or performance of contracts etc. if being
performed in the UAE, any income generated from these activities will be
considered UAE-sourced income. In the same way, if the assets, moveable or
immovable, are located in the UAE, then the income generated from these assets
will also be assumed UAE-sourced income.
The income related to the services, where the services are provided or utilised
or benefited in the UAE, will be considered UAE-sourced income. If a German
company is supplying services to Zee Ltd in the UAE, and Zee Ltd is consuming
these services in the UAE, it will be considered UAE-sourced income. If the
German company is providing services to a third party based out of the UAE but
getting paid for these services from the UAE based company, then it will not be
considered UAE-sourced income as the services have not been provided or consumed
or utilised in the UAE.
Interest income will be considered UAE-sourced income if the loan has been
secured against the property, either moveable or immovable, located in the UAE.
Moreover, if the borrower is a resident person or a government entity, any
interest earned or received will be considered UAE-sourced income.
As per law, insurance or reinsurance premiums will fall under the definition of
the UAE-sourced income if the insured asset is in the UAE, or an insured person
is a resident person, or the insured activity is being conducted in the UAE.
The worldwide income, including the UAE-sourced income, of a resident person is
taxable in the UAE, while the non-resident is subject to tax in the UAE for
their UAE-sourced income, income pertains to the PE of non-resident persons in
the UAE and income related to their nexus in the UAE. The worldwide income of
non-resident persons will not be subject to tax in the UAE.
Based on the scope of the law, the taxable persons must assess their status and
apply the tax on the related income accordingly.