Fixed or permanent place of Business in the UAE: Typically, a Non-Resident Person will have a fixed place Permanent Establishment in the UAE only if its operations satisfy all the below factors.
- The Non-Resident Person must have a “place of Business” in the UAE which could include a facility, such as an office, a work location, premises or, in certain instances, machinery or equipment, which is used by the Non-Resident Person to carry on its Business in the UAE on a regular/recurrent basis (hereinafter referred to as “place of Business test”)
- The place of Business must be “fixed” i.e. it must be established at a distinct place with a certain degree of “permanence” (hereinafter referred to as “permanence test”). A case-by-case evaluation needs to be made considering all relevant factor but an aggregate period of more than 6 months (even if not continuous), in the relevant 12 consecutive months, will typically indicate permanence.
- The place of Business must be at the disposal of the Non-Resident Person. The mere presence at a particular location does not necessarily mean that the location is at its “disposal”.
- The Non-Resident Person must have the right or effective power to use such place of Business (hereinafter referred to as the “disposal test”).
- The activities performed by the Non-Resident Person at such place of Business must be core income-generating activities and not of a preparatory or auxiliary nature (hereinafter referred to as the “Business Activity test”).
Immaterial factors for determining the existence of a fixed place Permanent Establishment;
- Ownership of the Non-Resident’s place of Business is immaterial. Even rented premises can constitute a Permanent Establishment.
- The formal legal right to use a particular place is not required if the Non-Resident Person has effective control over such location i.e. it is at its disposal to conduct its Business Activities. For example, a Permanent Establishment can exist where a Non-Resident Person illegally occupies a certain location to conduct its Business Activities.
- An exclusive right over a place is immaterial. A Non-Resident Person can have a Permanent Establishment even in cases where it conducts its Business through a specific location that belongs to another Person or that is used by several other Persons to perform their own Business Activities at the common location.
The Corporate Tax Law provides a list of illustrative and non-exhaustive examples of a fixed or permanent place of Business in the UAE as follows;
- A place of management where management and commercial decisions that are necessary for the conduct of the Business are, in substance, made.
- A branch.
- An office.
- A factory.
- A workshop.
- Land, buildings and other real property.
- An installation or structure for the exploration of renewable or non-renewable natural resources.
- A mine, an oil or gas well, a quarry or any other place of extraction of natural resources, including vessels and structures used for the extraction of such resources.
- A building site, a construction project, or place of assembly or installation, or supervisory activities in connection therewith, but only if such site, project or activities, whether separately or together with other sites, projects or activities, last more than 6 months, including connected activities that are conducted at the site or project by one or more Related Parties of the Non-Resident Person.
The Corporate Tax Law specifies that a fixed or permanent place in the UAE shall not be considered a Permanent Establishment of a Non-Resident Person if it is only used for:
- Storing, displaying or delivering of goods or merchandise belonging to that Person.
- Keeping a stock of goods or merchandise belonging to that Person for the sole purpose of processing by another Person.
- Purchasing goods or merchandise or collecting information for the Non-Resident Person.
- Conducting any other activity of a preparatory or auxiliary nature for the Non- Resident Person.
- Conducting any combination of the above listed activities, provided that the overall activity is of a preparatory or auxiliary nature.
Certain additional exclusions from fixed place Permanent Establishment includes where a natural person will not create a permanent establishment for a Non Resident such as unpredictable temporary and exceptional situations or a natural person. The natural person who is employed by the Non-Resident Person does not conduct core income-generating activities of the Non-Resident Person or its Related Parties, and the Non-Resident Person does not derive any State Sourced Income, for instance sales to UAE customers.
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