Determining a non-resident person’s nexus for tax or legal purposes is a crucial concept in the United Arab Emirates particularly considering the introduction of new tax regimes like corporate taxes VAT, and other regulations. Here is a summary of the general process used in the United Arab Emirates to determine a non-resident person’s nexus.
A non-resident person
A non-resident person is a person who does not fit the requirements for tax residency in the United Arab Emirates and is usually considered a non-resident. People or organizations that don’t have a physical presence a permanent establishment or significant business operations in the UAE may fall under this category. Individual businesses or foreign entities may be considered non-residents.
Corporate Taxation
If a non-resident entity maintains a permanent establishment (PE) in the UAE such as a representative office or a fixed place of business, it is typically liable for UAE tax. Income from sources inside the UAE such as rental income or gains from assets based there may also be subject to taxation for non-residents. The law determines nexus by considering the non-resident entity’s economic activity as well as its physical presence.
Evaluations of Value Added Tax (VAT)
If non-resident individuals provide goods or services inside the UAE, they may also be subject to the VAT regime. Whether or not the supply is deemed to occur in the UAE may determine the concept of nexus under VAT. If a non-resident individual engages in taxable activities within the United Arab Emirates (e.g. A. selling goods and rendering services) they might have to register with the Federal Tax Authority (FTA) for VAT. The volume of transactions or whether the non-resident has a fixed establishment in the United Arab Emirates are two examples of factors that may trigger VAT registration.
The regulation of economic substances.
To conform to international tax standards, the UAE has also put the Economic Substance Regulations into effect. Certain economic substance requirements must be met by foreign nationals engaging in specific activities in the United Arab Emirates such as banking insurance or holding company operations. If an individual who does not reside in the country has adequate economic activity (e.g. employee’s tangible assets and commercial operations) in the United Arab Emirates thereby establishing a connection for adherence to the Economic Substance Regulations.
DTTs or double taxation treaties
The United Arab Emirates has signed many Double Taxation Treaties (DTTs) with other nations. In cross-border transactions, these treaties can assist in defining the nexus for a non-resident individual. Income taxation in the United Arab Emirates or the non-resident’s home country may be impacted by the treaties which typically divide taxing rights between the two nations. DTT recipients who are not residents may be exempt from UAE taxes or subject to lower rates contingent on the terms of the agreement.
Non-residents personal income tax.
As of right now, individuals in the UAE are exempt from personal income tax. However, under certain rules, non-resident people who receive income from sources based in the UAE like business profits might be taxed.
Criteria for Residency and Determination.
The length of stay for business activity and other criteria are the main determinants of an individual’s tax residency status in the United Arab Emirates (e. g. possessing a UAE residency permit or staying in the nation for a sizable amount of the year). On the other hand, non-residents usually have little to no ties to the UAE and might only be obliged to pay taxes if they create a nexus as mentioned above or receive income from UAE sources. The type of business operations physical presence and relevant tax laws—such as corporate tax VAT and economic substance requirements—largely determine a non-resident person’s nexus in the United Arab Emirates. For tax or compliance purposes non-resident people or organizations doing business in the UAE that reach specific income-generating or business activity thresholds may establish a nexus.
