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  • Permanent Establishment – What does it mean for you?

Permanent Establishment – What does it mean for you?

19 January 2023

With the on-set of the Corporate Tax (CT) regime in the UAE, it is important for any business established outside of the UAE, but operating in the UAE or dealing with the UAE, to evaluate whether the business established outside of the UAE is exposed to creating a Permanent Establishment (PE) in the UAE.


The CT Decree-Law, confirms that for a business established outside the UAE, a PE can be created in the following circumstances:

  1. Having a Fixed/Permanent physical establishment in the UAE;
  2. Having a Dependent Agent in the UAE; or
  3. Having any other form of nexus with the UAE, as may be prescribed in Cabinet Decision.

Regarding number 3 above, it could be premature to comment as the Cabinet Decision clarifying the concept of “nexus” is awaited. However, concepts of Fixed Place PE and Dependent Agent PE have been clarified to greater detail.

We have attempted to simplify the PE concept in a question-and-answer form with cross-referencing to relevant Articles of the CT Decree-Law:

How can a Fixed Place PE be established in the UAE?

  • Having key decision makers of the business regularly residing in the UAE;
  • Having a branch, office, factory, workshop, land, buildings, other real estate, specified installations or structures; or
  • Having a building site, construction project, place of assessment or installation or supervisory activity where the work will last more than 6 months.

BDO insight

Some of the activities listed above may require the set-up of a locally registered branch or an entity and in such cases, it is likely to be clear that the local presence may be subject to CT. However,  the risk created by the regular residence of key decision makers may be less obvious. Recently, many individuals have chosen the UAE as their place of residence, and this may expose the overseas business they represent to a PE risk in the UAE. In the context of larger GCC region, where citizens have free movement and relaxed immigration, this aspect of could be easily overlooked. Hence, if decision makers reside in the UAE, or might consider residing in the UAE, it is of paramount importance to have safeguards and processes in place to ensure any PE risk is identified and dealt with.

What may not establish Fixed Place PE in the UAE?

  • Merely storing, displaying, or delivering physical goods;
  • Maintaining stock  to be used by another person for processing;
  • Purchasing goods or collecting information related to goods;
  • Conducting any other activity which could qualify as preparatory or auxiliary in nature.

Furthermore, the presence of a natural person in the UAE may not create Fixed Place PE if the presence is temporary or exceptional in nature, where the natural person’s employer does not have UAE sourced income.

BDO insight

As there could very thin line between what may or may not establish a Fixed Place PE, it is important for businesses established outside the UAE to have relevant safeguards or make informed logistical decisions while dealing with the UAE.

Who should be considered a Dependent Agent?

  • A person that habitually concludes contracts
  • A person that habitually negotiates contracts without the need for material modification

Who should not be considered a Dependent Agent?

A person who is independent and acts on a non-exclusive basis in the normal course of business.

BDO insight

As there could very thin line between who qualifies as a Dependent Agent v. who does not, it is of paramount importance to look at the contractual arrangements and factual circumstances. In our experience, Tax Authorities usually adopt a very subjective, case-to-case approach while investigating agency aspects.

What will happen if a CT PE is established in the UAE?

If a foreign business has a  PE in the UAE, it will be required to draw-up separated audited financial statements for the UAE operations, conduct an audit of the same and accordingly comply with the Articles of the CT Decree-Law. Correspondingly, depending on the country where the business is established, there could relaxations from discharging CT liabilities in that jurisdictions.

BDO insight

Subject to business considerations and the fact that the UAE may not initially levy Withholding Taxes (WHT), it could be worthwhile implementing safeguards, to monitor PE risk and where possible, steer businesses established outside the UAE away from exposing themselves from creating a PE in the UAE.  

Corporate Tax in the UAE