As the UAE strengthens its corporate tax framework, foreign companies doing business with or in the UAE must carefully assess their tax exposure. Even without a local incorporation, foreign entities may fall within the scope of UAE corporate tax through permanent establishment (PE), economic nexus, or UAE-sourced income.
This guide explains how UAE corporate tax applies to foreign companies, with a focus on PE rules, nexus thresholds, and cross-border compliance obligations under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
Table of Contents
Do Foreign Companies Pay Corporate Tax in the UAE?
Yes, a foreign company may be subject to UAE corporate tax if it:
- Has a Permanent Establishment (PE) in the UAE
- Earns UAE-sourced income
- Has a nexus in the UAE as defined under the law
Foreign companies that meet any of these conditions may be required to register, file returns, and pay corporate tax in the UAE.
Permanent Establishment (PE) Explained
A Permanent Establishment generally refers to a fixed place of business through which a foreign company carries out its business in the UAE.
Common PE Examples:
- A branch or office in the UAE
- A warehouse or place of management
- Construction or installation projects exceeding the prescribed duration
- A dependent agent habitually concluding contracts in the UAE
Once a PE is established, profits attributable to the PE are subject to UAE corporate tax at 9%, after allowable deductions.
Economic Nexus and UAE-Sourced Income
Even without a physical presence, a foreign company may have a tax nexus if it earns income sourced from the UAE, such as:
- Services performed in the UAE
- Income from UAE-based customers
- Leasing or licensing of assets used in the UAE
- Digital services with significant UAE market involvement
The scope of nexus is further clarified through Cabinet and Ministerial Decisions and FTA guidance.
Cross-Border Transactions and Withholding Tax
The UAE currently applies a 0% withholding tax on outbound payments such as:
- Dividends
- Interest
- Royalties
However, cross-border transactions remain subject to:
- Transfer pricing rules
- Anti-avoidance provisions
Foreign companies must assess treaty eligibility and documentation requirements carefully.
Transfer Pricing & Related-Party Transactions
Foreign companies with UAE operations must comply with OECD-aligned transfer pricing rules, including:
- Arm’s length pricing
- Disclosure of related-party transactions
- Maintenance of Master File and Local File (where applicable)
Non-compliance may result in tax adjustments and penalties.
Corporate Tax Registration & Filing for Foreign Companies
Foreign companies subject to UAE corporate tax must:
- Register with the Federal Tax Authority (FTA)
- File annual corporate tax returns
- Maintain proper financial and tax records
- Disclose cross-border transactions
Even where tax payable is minimal, compliance obligations remain mandatory.
Key Takeaways for Foreign Companies
- UAE corporate tax can apply without local incorporation
- Permanent establishment is a key trigger
- UAE-sourced income may create nexus
- Withholding tax is 0%, but transfer pricing applies
- Treaty planning and compliance are critical
