Newsletter | Corporate Tax – No.1

Background

Under UAE CT Law, a Non-Resident Person that has a Permanent Establishment (PE) in the UAE will be subject to Corporate Tax (CT) on any income that is attributable to that PE. However, Article 15 allows an exemption stating that a Non-Resident Person can engage with an Investment Manager in the UAE without triggering a PE in the UAE for the foreign company.

This newsletter describes aspects about Investment Manager Exemption.

Non-Resident Person

A Non-Resident Person has a PE in the UAE if they have –

Fixed or Permanent place

Agency PE –Dependent or Independent

Any other form of Nexus (to be prescribed)

Dependent v/s Independent Agent

An agent is independent from the Non-Resident Person depends on the extent of the obligations which the Person has vis-à-vis the Non-Resident Person.

Independent Agent: Legally and economically –

• Should not be an employee of the Non-resident person

• Conducts activities for the Non-Resident Person in his own capacity and charges fees as a consideration

Dependent Agent: Conducts/acts exclusively or almost exclusivelyon behalf of the Non-Resident Person (or its Related Parties)–

• Subject to detailed instructions by the Non-Resident Person

• Major source of income comes from the Non-Resident Person

Investment Manager

An Investment Manager is a person who provides brokerage or investment management services that is subject to the regulatory oversight of the competent authority in the State.

Article 15 allows regulated UAE based Investment Managers to provide discretionary investment management services and to enter into transactions on behalf of foreign customers without triggering a Permanent Establishment for the Non-Resident Person (foreign investor or a foreign investment entity).

This is achieved by providing that a UAE based Investment Manager shall be treated as an Independent Agent.

Conditions for Exemption:

An Investment Manager carrying on its business on behalf of a Non-resident Person (foreign person), shall be considered an independent agent subject to following conditions being met

Provides investment management or brokerage services
Carries out transactions in the ordinary course of the business
Acts in an independent capacity and on its own account in relation to the transactions carried on

Remuneration received by Investment Manager must be at an Arm’s Length from the foreign person
Remuneration should be subject to the regulatory oversight of the authority
oversight of the authority Must not be an agent in the UAE in relation to any other business income of the foreign person

Must meet any such other conditions as may be prescribed by the Minister.

Transactions in commodities, real property, bonds, shares, derivatives, or securities.
Transactions of buying or selling any foreign currency or placement of funds at interest.
Any other transaction conducted on behalf of a Non-Resident Person.

What Transaction Includes?

Scenarios:

Scenario A

Mr. A, an agent in the UAE is conducting transactions on behalf of XYZ foreign Company. Mr. A is earning income of AED 20 million during the year 2024. This includes 18 million worth revenue generated from transactions performed for XYZ Ltd.

Additionally, Mr. A is not carrying out transactions in his own capacity and receiving detailed instructions from XYZ Ltd. Thus, he should be considered as a dependent agent of XYZ Ltd. and he should not be eligible to claim Investment Manager Exemption.

The activities of XYZ ltd. will thus trigger a PE in the UAE and the income attributable to such agency PE would ordinarily be subject to CT in the UAE.

Scenario B

Similarly, in another case, Mr. B, an agent in the UAE is conducting transactions on behalf of PQR foreign Company. Mr. B is earning income of AED 1 million during the year 2024 for the activities performed for PQR Ltd. His total income during the year is AED 10 million.

In this case, Mr. B is providing services in the ordinary course of business, not receiving detailed instructions from PQR Ltd. Thus, he should not be considered as a dependent agent of PQR Ltd. and he should be eligible to claim Investment Manager Exemption. Additional parameters should be evaluated to determine if income of PQR Ltd. would be subject to CT in the UAE (for instance, Fixed place PE, State Sourced income, Nexus formation, etc).

To summarise, it is necessary to evaluate all required parameters to determine if a PE is triggered in the UAE for a Non-Resident Person. AJMS supports in evaluating these parameters from taxability perspective.

For more information contact us at info@ajmstax.com / +971 58 120 6294.