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Guide to Determine State-Sourced Income for Non-Resident Persons?

In the United Arab Emirates (UAE), the concept of State Sourced Income is essential for non-residents. This article serves as a comprehensive guide to identifying and evaluating State Sourced Income for individuals who are not UAE citizens. Under UAE tax legislation, substantial income originating from or within the country is deemed State Sourced Income, encompassing dividends, rent, royalties, and profits. These are all subject to specific rules and regulations established by tax authorities.

Income from a Resident Entity:

State Sourced Income includes earnings from legally recognized entities in the UAE, such as corporations and individuals, meeting the criteria for a Resident Person under Corporate Tax Law. For instance, a non-resident individual providing services to a UAE-based corporation would receive state-sourced revenue.

Business Activity Conducted Through Permanent Establishment:

Utilizing a permanent establishment in the UAE for conducting business activities may qualify a non-resident for state-sourced income. A Permanent Establishment refers to a permanently located office, branch, or factory hosting substantial economic activity. For example, revenue from operations through a foreign company's branch office in the UAE is categorized as State Sourced Income.

Activities, Assets, and Services in the UAE:

Income derived from activities, assets, or services within the UAE falls under State Sourced Income. The location of the activity, asset, or service plays a crucial role in determining tax responsibilities. For instance, revenues from a non-resident artist's performance at a concert in the UAE would be considered State Sourced Income.

Examples of State Sourced Income:

  • Sale of Goods:

Income from the sale of products to a UAE resident is classified as State Sourced Income. For instance, revenue from selling goods to a UAE-based shop by a foreign producer falls into this category.

  • Provision of Services:

If a service is provided within the UAE or the service's final beneficiary resides there, the income is considered State Sourced. For example, fees received by a non-resident consulting firm serving a client in the UAE.

  • Performance of Contracts:

The location of contract execution or the consumer/benefactor determines income from contract performance. For instance, proceeds from a construction project in the UAE by a non-resident construction business.

  • Property Transactions:

Income from property use or sale is determined by the property's location. Rental income from a non-resident's property in the UAE, for example, is State Sourced Income.

  • Capital Gains from Shares or Capital Rights:

Revenue from selling shares of a UAE-based entity is State Sourced Income. Capital gains from a non-resident investor selling shares in a UAE company fall into this category.

  • Intellectual or Intangible Property:

Income from using intellectual property within the UAE is sourced from the UAE for corporate tax purposes. For example, licensing payments for software used in the UAE are granted by a non-resident firm.

  • Interest and Insurance Income:

Interest income and insurance premiums are considered State Sourced Income when specific criteria are met. For instance, interest earned on a loan secured by property in the UAE by a non-resident lender.

Choose Tax Consultants in UAE

It is advisable for non-residents earning income from the UAE to effectively grasp the concept of State Sourced Income to ensure compliance with tax laws and accurately assess tax liabilities. Adhering to UAE tax regulations fosters a transparent and favorable business environment, mitigates unintentional non-compliance, and helps avoid associated fines. Thus, businesses are advised to seek the expert services of Tax Consultants in UAE to effectively determine taxability and ensure corporate tax compliance. 

Mostafa is a qualified Corporate Tax Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mostafa has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities. Read more