Exemption From Corporate Tax for Foreign Permanent Establishment 

A permanent establishment (PE) is an official label that requires foreign enterprises to register for corporation taxes. A PE is formed when a non-resident corporation conducts commercial activities from a fixed location in the UAE. This includes physical places such as offices, warehouses, factories, and even building sites where commercial operations have been taking place for more than six months.

PEs will also include installations and buildings utilized in natural resource exploration, as well as mines, oil or gas wells, quarries, and other extraction sites developed by a non-resident person. Once registered, the revenue made by such a permanent enterprise will be liable to corporation tax.

According to the CT Law, a “permanent establishment” is not defined as follows: using a facility or fixed location only for the storage, display, or delivery of a business’s goods; maintaining a business’s goods for processing by another business; using a facility to buy goods or gather data for the business; or using a facility to carry out secondary or supporting activities for the business.

Exception for Foreign Permanent Establishments.

1. A resident person might choose not to include the revenue and related expenses of its foreign permanent establishments when calculating its taxable revenue.
2. Where Clause 1 of this Article applies, a resident person shall not consider the following in computing its Taxable Income or Corporate Tax Payable for a Tax Period:
   1. Losses in Foreign Permanent Establishments must be calculated as if they were a Resident Person under this Decree-Law. 
   2. Positive income and expenditure in Foreign Permanent Establishments must be calculated as if they were a Resident Person under this Decree-Law. 
   3. Any Foreign Tax Credit available under Article 47 of this Decree-Law must also be considered.
3. For the purposes of this article, “income and associated expenditure” refers to the total amount of money earned and spent in each relevant foreign jurisdiction by a Taxable Person’s Foreign Permanent Establishments during a Tax Period.
4. A Resident Person and each of its Foreign Permanent Establishments must be considered as separate and independent Persons when calculating a Foreign Permanent Establishment’s revenue and related expenditure.
5. For the purposes of determining a Resident Person’s Taxable Income under Clause 4 of this Article, a transfer of assets or liabilities between a Resident Person and its Foreign Permanent Establishment is treated as occurring at Market Value on the date of the transfer.
6. The exemption granted by Clause 1 of this Article shall apply to any Foreign Permanent Establishments of the Resident Person that fulfill the conditions stipulated in Clause 7 of this Article.
7. The exemption under Clause 1 of this Article applies only to a Foreign Permanent Establishment that is subject to Corporate Tax or a similar tax under the applicable legislation of the relevant foreign jurisdiction at a rate not less than the rate specified in paragraph (b) of Clause 1 of Article 3 of this Decree-Law.

Objectives and Compliance Procedure

This exemption fosters cross-border economic activity while also making tax compliance easier for Resident Persons operating in foreign countries. Businesses may easily go through the tax environment and effectively plan their worldwide operations according to the Corporate Tax Law’s clear standards and criteria. The Foreign Permanent Establishment Exemption is a beneficial feature that reflects the UAE’s commitment to promoting corporate development and enabling international commerce. As companies continue to develop internationally, this exemption is evidence of the UAE’s progressive taxation policies, which foster economic growth and prosperity for both residents and the country overall.

Conclusion

These exemption laws offer a favorable tax environment for international enterprises operating in the UAE. The UAE’s position as a worldwide business hub is strengthened by reducing the danger of double taxation and facilitating effective tax management for enterprises. Companies contemplating creating a PE should engage with tax specialists to properly negotiate the complexity of the CT legislation and ensure compliance with the newest rules.