If you’re a non-resident doing business with the UAE — maybe you’re selling to clients, providing services remotely, or investing in property — this blog is for you. We’re breaking down how UAE Corporate Tax law treats income that’s sourced from the UAE, even if the person earning it isn’t physically there. You’ll learn what qualifies as “state sourced income”, what’s taxable, and what’s not. Let’s get into it.
Prelude
In international taxation, two big rules decide if income gets taxed: where the person lives (residency) and where the income comes from (source).
It usually works like this:
- If you’re a resident, your worldwide income can be taxed (though many countries offer exemptions or tax credits for foreign income).
- If you’re a non-resident, only the income that’s sourced from that country may be taxed.
The UAE follows this model too. That means non-residents can be taxed — but only if their income is tied to the UAE.
This matters for foreign companies or individuals who do business with people or entities in the UAE. And while the country has signed multiple Double Tax Avoidance Agreements (DTAAs) with other nations (which can override the domestic rules if more beneficial), this blog sticks to what UAE law says — DTAA treatment is a separate topic.
State Sourced Income
So, when does the UAE consider income to be “sourced” from inside the country?
There are a few situations where income is treated as UAE-sourced:
- It comes from a person who is a resident in the UAE
- It’s linked to a permanent establishment (PE) of a foreign business in the UAE
- Or it arises from one of the following:
- Activities performed in the UAE
- Assets located in the UAE
- Capital invested in the UAE
- Rights used within the UAE
- Services that are performed or benefitted from within the UAE
This list is pretty broad — and on purpose. It covers services, property, capital, and other types of income that connect in any meaningful way to the UAE.
State Sourced Income – Inclusive List
Let’s get more specific. UAE law gives a more detailed list of what counts as state sourced income. Think of this as a reference list, not a final one — more categories may be added later.
1. Selling goods in the UAE
Say a company from India sets up a stall at a Dubai trade expo. If they make sales there, that income is taxed in the UAE. Doesn’t matter if the company is registered in India — the sale happened in the UAE.
2. Services used or rendered in the UAE
Unlike other countries, the UAE doesn’t just focus on “technical” services. It casts a wider net — any service used or rendered in the UAE could be taxable. So if a freelancer in Europe provides design work for a UAE company, that income might be pulled into the UAE tax system.
This gets especially tricky for Indian service providers. The India–UAE DTAA doesn’t have a specific article for fees from technical services. So should such payments be treated as business income? Other income? Or taxed under UAE domestic law? These are grey zones — and need close attention.
3. Contracts performed or benefitted from in the UAE
Many contracts today are complex — a mix of supply, installation, after-sale service, etc. If any part of the work is carried out in the UAE, or the UAE benefits from the work, that income could be considered state sourced.
Even if a foreign business doesn’t have a physical office in the UAE, they still might fall under this category.
4. Property located in the UAE
Income from movable or immovable property in the UAE — say, rent or capital gains — would come under the scope of UAE-sourced income.
5. Selling shares of a UAE resident entity
If you sell your ownership in a UAE-based company, any gain on that sale could be taxed as UAE-sourced income — depending on the details.
6. Interest income — with conditions
Interest income might become taxable in the UAE if either:
- The loan is backed by UAE property, or
- The borrower is a UAE resident or a government body
Here’s an example:
Let’s say a holding company in the UAE offers one of its buildings as collateral for a loan taken by its Indian subsidiary. If a bank in India provides that loan, the interest earned by the bank could be taxed in the UAE — because of the location of the collateral.
If a third-country bank (say, one in Singapore) provides the loan, and UAE property is used as security, that interest might now face tax exposure in three countries — India, Singapore, and the UAE.
7. Use of IP or intangible assets in the UAE
If a non-resident licenses a trademark, patent, or software and the end user is in the UAE, that’s UAE-sourced income. Simple as that.
8. Insurance or reinsurance with UAE connections
Premiums could be taxable if:
- The insured asset is in the UAE
- The insured party is a UAE resident
- The activity being insured takes place in the UAE
Corporate Tax Implications of UAE Sourced Income
Now let’s get into who’s actually taxed, and when.
For foreign individuals
If a foreign individual is engaged in business in the UAE, and the Cabinet recognizes it as a taxable activity, they’ll be treated like a resident for tax purposes.
But if the individual isn’t running a business, and just earns passive income (like interest or dividends) from UAE sources — then no corporate tax applies.
So if you’re just investing, or getting occasional income from the UAE without operating a business, you won’t be pulled into tax filings or registration.
For foreign companies
It’s the same principle. Just earning state sourced income does not automatically create a tax filing or registration requirement.
However — and this is important — the law does allow for withholding tax to be introduced later. That means certain types of UAE-sourced payments to non-residents might face deduction at source. Right now, the withholding rate is 0%, but that could change by Cabinet decision.
Internationally, when a non-resident earns income from a country, it’s usually taxed at the source — often as a flat percentage, without calculating profits.
This works through withholding:
The payer — say, a UAE business — withholds the tax and pays the balance to the non-resident. It’s a clean system: the tax gets collected upfront, and the non-resident avoids the hassle of filing returns or calculating taxable profits.
Now, here’s the UAE’s approach — at least for now:
- There’s no explicit rule taxing non-residents on gross income
- But the law includes a placeholder — allowing the Cabinet to introduce withholding taxes on certain categories of income
So far, the rate is zero, but that doesn’t mean it’ll stay that way. As business flows evolve, the Cabinet might specify certain income types — like interest, royalties, or fees — that get taxed through withholding.
Also remember: DTAAs override UAE law when they offer better treatment. If the DTAA between your country and the UAE limits taxation or offers exemptions, those will take precedence.
Final Thoughts
Just because you don’t have an office in Dubai doesn’t mean you’re safe from UAE tax. That’s the key idea behind state sourced income — if your money has anything to do with the UAE, there’s a chance it could be taxed.
Now, does that mean every non-resident is automatically in trouble? Not at all. In fact, most passive income right now is not taxed, and you don’t need to register unless you’re doing business in the UAE.
But still — you can’t afford to ignore this. If you’re:
- Selling to UAE clients
- Offering remote services to people there
- Licensing tech or intellectual property
- Investing in local businesses or property
…then you should probably check whether your income fits the “state sourced” label.
We’re all waiting on more clarity — especially on withholding tax and how specific income types will be treated. But for now, one thing is clear: the rules are expanding, and it’s smarter to prepare than to be surprised.
