This blog dives deep into the concept of Permanent Establishment (PE) under UAE Corporate Tax Law. If you’re a foreign company operating in or interacting with the UAE market, understanding when and how you create a PE can determine whether your income becomes taxable in the UAE. We’ll break down the different types of PEs, the exceptions, special cases like agents and investment managers, and even foreign PE exemptions for UAE residents. Let’s begin.
Preface
In earlier updates, we explored how the UAE Corporate Tax law applies to non-residents, especially when their income is sourced from within the country. One key element in that context is the Permanent Establishment (PE). If a non-resident has a PE in the UAE, the income earned through it can become taxable.
This article walks through what exactly counts as a PE under the UAE Corporate Tax law—and why it matters.
Background
Cross-border business is booming, but so are the complexities around taxation. When a foreign company maintains a consistent presence in the UAE to carry out its business, the income tied to that presence may be taxed. That consistent, business-tied presence is referred to as a Permanent Establishment.
The idea of a PE is built on two pillars:
- “Permanent” refers to the time span—it’s not temporary or incidental.
- “Establishment” is the physical or identifiable business unit—could be a place, an office, or even a structured operation.
This concept is also shaped by Article 5 of DTAAs the UAE has signed with various countries. It typically defines PE as a fixed place through which the business of an enterprise is wholly or partly carried on.
The UAE’s definition aligns closely with the OECD Model Tax Convention, which has become the international benchmark in this space.
PE for Non-Residents
Under UAE tax law, a non-resident is considered to have a PE in the country in three main scenarios:
- Fixed place PE – There’s a specific location or place in the UAE where the non-resident conducts business.
- Agency PE – A person in the UAE has the authority and habitually exercises it to conduct business on behalf of the non-resident.
- Nexus PE – The non-resident has some other kind of economic or operational link (a ‘nexus’) to the UAE, as defined by Cabinet decision (yet to be released).
Fixed or Permanent Place of Business
Let’s start with the most common type—Fixed Place PE. These are physical or operational presences in the UAE tied to ongoing business activity. Examples include:
- Place of Management
A location where major decisions—financial, strategic, or operational—are made. It could be an office, a boardroom, or even a residential space where company heads work from. - Branch
A typical branch office of a company registered in another country. If it mirrors or extends the business of the head office, it’s a PE. - Office
Could be a small room or an entire floor. What matters is that business is being conducted from there. - Factory
If manufacturing or processing of goods happens at a site in the UAE, that location qualifies as a PE. - Workshop
A space where goods are made, fixed, or assembled. Even places used for manual labor or trade work would fall under this. - Land or Buildings
If land or real property in the UAE is used for business activities, it may be treated as a PE.
And there’s more:
- Installations for Exploring Resources
Think wind farms, solar setups, oil rigs—any structure used to explore renewable or non-renewable natural resources. - Extraction Sites
Mines, oil or gas wells, and quarries—all places where natural resources are pulled from the ground—are included. - Construction Sites or Installation Projects
If the project—on its own or combined with related activities—lasts more than six months, it becomes a PE. This also covers supervisory activities and work carried out by related parties.
Examples? Roads, canals, pipelines, major renovations, dredging work—if it’s more than maintenance and it stretches beyond half a year, it qualifies.
Exceptions to Fixed or Permanent Place as PE for Non-Residents
Not every place of business creates a PE. If the activities are preparatory or auxiliary (PoA) in nature, the location may not be treated as a PE.
Let’s break that down:
- Preparatory activities are tasks done in advance—like researching a market before launching operations.
- Auxiliary activities support the core business but don’t define it. Think warehousing or collecting data.
Some exceptions include:
A) Storing, displaying, or delivering goods
B) Keeping stock for processing by another person
C) Purchasing goods or collecting information
D) Any preparatory or support activity
E) Combination of the above — as long as the overall activity is PoA
These rules are shaped by the BEPS Action Plan 7, which aims to prevent businesses from avoiding PE status through minor operations.
However, even PoA activities can lose their exception if they are part of a larger setup.
Here’s when that happens:
- If the non-resident or a related party also runs a business from another place in the UAE, and
- If the two sets of activities—though seemingly separate—together form a cohesive business operation
This is called anti-fragmentation. It’s a safeguard to stop companies from splitting up activities into “harmless” parts to avoid tax liability.
In simple terms: If it looks like business, runs like business, and earns like business—it’s business. And it can be taxed.
Agency PE
A non-resident can also have a PE without owning any property in the UAE, simply through the actions of someone else—an agent.
There are two main ways this happens:
- The agent habitually concludes contracts on behalf of the non-resident
- The agent negotiates contracts, and they’re later signed by the non-resident without much change
Even if the non-resident doesn’t step foot in the UAE, the agent’s repeated actions can create a tax liability through PE.
But here’s the key point:
If the agent works exclusively or almost exclusively (90% or more) for one non-resident, and isn’t legally or economically independent, then the PE is triggered.
Independent agents—like brokers or dealers—don’t create PE if they’re genuinely autonomous and act in the ordinary course of business.
Presence of Natural Person
What about individuals—say, an employee of a foreign company—spending time in the UAE?
Good question. Just being in the UAE doesn’t create a PE. The law outlines conditions to prevent that:
- If the person’s stay is temporary or due to exceptional situations
- If the person is employed by the non-resident, and:
- The non-resident doesn’t earn UAE-sourced income
- The person’s work is not part of the company’s core income-generating activity
This clarification makes it clear that PE is about business, not just presence.
Investment Manager – Independent Agent
An investment manager can act on behalf of a non-resident without creating a PE—but only if certain boxes are ticked.
They must:
- Be in the business of investment management or brokerage
- Be regulated by UAE authorities
- Operate independently
- Be paid fairly (arm’s length)
- Not act as a representative for the non-resident in any other income or transaction subject to UAE Corporate Tax
- And follow any other rules introduced by the Cabinet
The idea is to support capital markets and financial services without penalizing professional, independent managers.
Foreign PE Exemption
Now flip the script.
Let’s say a UAE resident company has a foreign PE. Does it have to pay UAE tax on that PE’s income?
Not necessarily.
The law allows UAE residents to exclude the income and expenses of their foreign PEs from their local tax calculations—if the foreign PE is taxed at a rate of at least 9% in its home country.
This exemption is helpful, but it comes with conditions:
- Losses of the foreign PE can’t be deducted
- Income and expenses are calculated as if the foreign PE were a UAE resident
- Transfers between the UAE and foreign PE must be done at market value
- Each foreign PE must be treated as a separate and independent entity
This creates a fair system—one that prevents double taxation while still ensuring that profits don’t slip through the cracks.
Final Thoughts
The concept of Permanent Establishment sits at the center of international tax rules—and for good reason. It defines the point where a business’s cross-border presence becomes substantial enough to justify local taxation.
The UAE’s take on PE covers a wide range of scenarios—from physical offices to remote agents, from mining rigs to long construction projects. And while some exceptions do exist, they’re not loopholes—they’re conditional and closely monitored.
If you’re operating across borders, especially in or around the UAE, take a closer look at how your activities stack up. Sometimes a simple presence or a trusted local partner could quietly create a PE—and with that, a new tax responsibility.
The message is simple: Don’t assume. Check.
Because understanding your PE status now is always better than facing a surprise tax bill later.
