Under the corporate tax law in UAE, a non-resident person is considered taxable if they have a nexus in the UAE. This nexus can be established if the person earns income from immovable property in the country. Immovable property includes land, buildings, and related fixtures or equipment. The registration with taxation authority in UAE is mandatory for Non-resident juridical persons to get a TRN (Tax Registration Number). The corporate tax law incorporates anti-avoidance provisions to prevent abuse and artificial transactions related to immovable property. The UAE's tax regulations align with international standards, demonstrating its commitment to global tax principles. Expenses incurred for business purposes are generally tax-deductible, although some categories may be restricted. It is worth noting that recent changes restrict the acquisition of immovable property to UAE-incorporated entities, which limits the impact on non-resident juridical persons. Therefore, compliance with the corporate tax law is essential for non-resident juridical persons to meet their tax obligations effectively.
Determining Immovable Property
The concept of "Immovable Property" is defined in Article 1, stating that it encompasses various elements such as land, buildings, structures, engineering works, fixtures, equipment, and anything permanently attached to the land or buildings. This comprehensive definition ensures that all relevant assets related to real estate are considered within the scope of the decision.
Establishing Nexus of Non-Resident
In accordance with the Corporate Tax Law, a non-resident has a nexus with the state, if they get income from any immovable property situated in the UAE. This means that non-resident persons who derive income from real estate assets in the UAE will be subject to taxation under the Corporate Tax Law.
Taxable Income & Immovable Property
The law specifies that income from various property-related activities is included in the state's taxable income attributable to immovable property. All forms of exploitation of immovable property, including the sale, right in rem, assignment, disposal, letting (which includes subletting), and direct use. The exploitation of immovable property in any way, including the sale, right in rem, assignment, disposal, letting (which includes subletting), direct use and any other such activity, falls under this category. This ensures that income generated from different real estate transactions is properly accounted for and subject to taxation.
Transfer of Rights Artificially
A non-resident person will be deemed to have entered into an agreement to obtain a corporate tax advantage if they artificially transfer or dispose of their right in rem in any immovable property in the state to a third party without a legitimate commercial or non-fiscal reason reflecting economic reality. This provision aims to prevent abusive practices and ensure that transactions involving immovable property are conducted for legitimate reasons.
Read more: Exemptions under Corporate Tax Law, UAE
The new corporate law imposes a requirement for non-resident persons with a nexus in the state to register for corporate tax. According to Article 51 of the Corporate Tax Law, non-resident individuals who meet the requirements outlined in Article 2 of the decision must register with the appropriate body. This registration requirement ensures proper compliance with tax regulations and facilitates effective enforcement of tax obligations.
The corporate tax law incorporates anti-avoidance provisions to prevent artificial transfers or disposals of immovable property solely for tax advantages. Transactions lacking valid commercial or economic reasons may be considered abusive arrangements, leading to adjustments in the taxable person's liability.
The UAE's tax regulations, including the CTL, are in line with international tax principles, as reflected in Article 6 of the OECD Model Tax Convention (2017). This demonstrates the country's commitment to global tax standards.
Deductibility of Expenses
For business purposes the expenses are deductible however, certain expense categories may be disallowed or restricted to prevent abuse and ensure that deductions are related to generating taxable income.
It is important to note that recent changes restrict the acquisition of immovable property in the UAE to UAE-incorporated or established juridical persons. This limitation may reduce the impact of the CTL on non-resident juridical persons.
As with any legislative measure, the new changes in corporate tax law officially published in the Official Gazette regarding Non-resident persons earning income from immovable property in the UAE are in the ambit of new law for the compliance and ensure their preparation for adherence and taking advantages.
The new corporate law introduces significant provisions by establishing the criteria for determining the nexus of non-resident persons in the state for taxation purposes. By including income derived from immovable property within the scope of taxation, addressing artificial transfers of rights, and imposing registration requirements, the decision aims to ensure fairness and transparency in corporate tax regulations.