Permanent Establishments: Temporary & Exceptional Situations

Introduction

The United Arab Emirates (UAE) has recently introduced Ministerial Decision No. 83 of 2023 on the Determination of the Conditions under which the Presence of a Natural Person in the State would not Create a Permanent Establishment for a Non-Resident Person ("Ministerial Decision No. 83 of 2023") for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses ("Corporate Tax Law").

This decision aims to clarify the circumstances under which a natural person's presence in the UAE will not constitute a permanent establishment for a non-resident person. In this blog post, we will explore the key aspects of this Ministerial Decision and potential actions which UAE businesses should perform in light of the recent publications of the various Ministerial Decisions in respect of the Corporate Tax Law.

Conditions for Temporary and Exceptional Presence in the UAE

Article (2) of Ministerial Decision No. 83 of 2023 outlines five conditions that must all be met for a natural person's presence in the UAE to be considered temporary and exceptional:

1. The presence is due to exceptional circumstances of public or private nature.
2. The exceptional circumstances cannot reasonably be predicted by the natural person or the non-resident person.
3. The natural person has no intention of remaining in the UAE after the exceptional circumstances end.
4. The non-resident person does not have a permanent establishment in the UAE before the occurrence of the exceptional circumstances.
5. The non-resident person does not consider that the natural person is creating a permanent establishment or deriving income in the UAE as per the tax legislation applicable in other jurisdictions.

Examples of Exceptional Circumstances

The Ministerial Decision No. 83 of 2023 also provides examples of exceptional circumstances, which include:

a) Public Nature Exceptional Circumstances:

1. Public health measures adopted by authorities or the World Health Organization.
2. Travel restrictions imposed by authorities.
3. Legal sanctions preventing the natural person from leaving the UAE.
4. Acts of war or terrorist attacks.
5. Natural disasters or force majeure events.
6. Other similar circumstances prescribed by the FTA.

b) Private Nature Exceptional Circumstances:

1. Emergency health conditions affecting the natural person or their relatives up to the fourth degree.
2. Other similar circumstances prescribed by the FTA.

Conclusion

Ministerial Decision No. 83 of 2023 provides much-needed clarity on the conditions under which a natural person's presence in the UAE will not create a permanent establishment for a non-resident person. Businesses and individuals operating in the UAE should proactively assess their operations and potential exposure to permanent establishment risks. To effectively navigate the evolving UAE tax landscape, they should consider the following actions:

1. Regularly review and update their understanding of the UAE's tax laws and regulations, particularly in light of any new developments or changes.
2. Evaluate their existing business structures, activities, and arrangements in the UAE to identify any potential permanent establishment risks and take corrective actions, if necessary.
3. Implement robust internal compliance processes and documentation procedures to demonstrate adherence to the Corporate Tax Law.
4. Seek professional advice from tax experts, such as HSBM Global, to ensure compliance with the latest tax laws and minimize exposure to potential risks and penalties.

At HSBM Global, we are here to help you understand and comply with the UAE's tax laws and regulations. Our team of experts can guide you through the complexities of the corporate tax landscape and ensure that your business operations remain compliant. Email us today at tax@hsbmglobal.com for assistance.