With the introduction of UAE Corporate Tax under Federal Decree-Law No. 47 of 2022, the concepts of Permanent Establishment (PE) and Nexus have become critical for UAE businesses dealing with non-resident entities, overseas group companies, foreign consultants, and cross-border service providers.

Misinterpreting these rules can lead to unexpected corporate tax exposure, registration failures, penalties, and disputes with the Federal Tax Authority (FTA). This article provides a detailed and practical explanation of PE and Nexus rules in the UAE, aligned with the latest Ministerial Decisions and FTA guidance, to help businesses remain compliant and tax-efficient.

Understanding Permanent Establishment (PE) Under UAE Corporate Tax

What is a Permanent Establishment?

A Permanent Establishment refers to a taxable presence of a non-resident person in the UAE, which results in UAE Corporate Tax liability on profits attributable to that presence, in accordance with Article 14 of Federal Decree-Law No. 47 of 2022.

Under UAE Corporate Tax law, a PE generally arises when a non-resident carries on business in the UAE through:

• A fixed place of business, or
• A dependent agent in the UAE

Where a Double Taxation Avoidance Agreement (DTAA) applies, the PE definition and thresholds under the relevant tax treaty override domestic UAE Corporate Tax provisions. Therefore, PE assessments must always be tested against applicable treaties first.

Fixed Place Permanent Establishment

A fixed place PE exists where a non-resident has a physical location in the UAE through which business activities are carried on, including:

• Offices or branches
• Workshops or factories
• Warehouses (used beyond preparatory or auxiliary activities)
• Construction or installation projects exceeding prescribed time thresholds

Key consideration: The place must be at the disposal of the non-resident and used on a regular or continuous basis, as interpreted in line with OECD principles adopted by the UAE Corporate Tax regime.

Dependent Agent Permanent Establishment

A dependent agent PE arises when a person in the UAE:

• Acts on behalf of a non-resident, and
• Habitually concludes contracts, or plays the principal role leading to the conclusion of contracts, and
• Is not acting independently in the ordinary course of business

This is particularly relevant for:

• Commission agents
• Sales representatives
• Local group companies acting for overseas affiliates

Ministerial Decision No. 83 of 2023

Exceptional Circumstances Where PE is Not Created

Ministerial Decision No. 83 of 2023 provides relief where the presence of a natural person in the UAE does not create a PE, provided all prescribed conditions are met.

This relief applies strictly to the presence of natural persons and does not extend to legal entities or corporate arrangements.

Conditions for PE Exemption

The exemption applies where:

1. The presence arises due to exceptional circumstances beyond reasonable control
2. The presence is temporary in nature
3. There is no intention to establish or maintain a permanent presence
4. The non-resident did not previously have a PE in the UAE

This Decision is especially relevant for:

• Emergency relocations
• Crisis-driven business continuity arrangements
• Temporary remote working due to unforeseen events

Important: This is a narrow and fact-specific relief. Businesses must maintain robust documentation to support reliance on this exemption.

The exemption prevents the creation of a PE but does not, by itself, eliminate Corporate Tax registration obligations if a separate nexus exists.

Nexus Rules Under UAE Corporate Tax

What is a Nexus?

A nexus determines whether a non-resident person is required to register for UAE Corporate Tax, even if no PE exists.

Unlike PE, nexus focuses on prescribed economic connections with the UAE, and exists only in situations explicitly defined under Federal Decree-Law No. 47 of 2022, Cabinet Decisions, Ministerial Decisions, and FTA guidance (CTGNRP1). There is no general or implied economic nexus concept under UAE Corporate Tax.

Common Nexus Triggers for Non-Residents

A non-resident person is considered to have a nexus in the UAE if it:

• Earns income from immovable property located in the UAE
• Carries on business through a PE in the UAE
• Undertakes activities specified by Cabinet or Ministerial Decisions

Once a nexus exists, FTA registration becomes mandatory, even if the ultimate tax payable is nil as clarified under the Taxable Non-Resident Person Guide (CTGNRP1).

Nexus vs Permanent Establishment: Key Difference

Tax Residency & Ministerial Decision No. 27 of 2023

Ministerial Decision No. 27 of 2023 clarifies the implementation of tax residency rules under Cabinet Decision No. 85 of 2022.

Why This Matters

Tax residency impacts:

• Applicability of Double Taxation Avoidance Agreements (DTAAs)
• Characterisation of income as resident or non-resident
• PE and nexus risk assessments

The Decision also governs the procedural and evidentiary requirements for obtaining a UAE Tax Residency Certificate (TRC), including day-count tests, place of effective management, and supporting documentation.

Businesses employing or seconding individuals to the UAE must evaluate day-count tests and economic substance indicators carefully.

Taxation of Profits Attributable to a PE

Where a PE exists, the non-resident must:

• Compute profits attributable to the PE using the arm’s length principle
• Maintain transfer pricing documentation
• File a UAE Corporate Tax return

Only profits economically linked to UAE activities are taxable; global income is not.

Profit attribution follows the OECD Authorised Approach, as reflected in the UAE Corporate Tax and Transfer Pricing framework.

Practical Compliance Checklist for UAE Businesses

• Identify all non-resident relationships
• Review contracts for agent authority clauses
• Track duration and purpose of foreign personnel visits
• Assess UAE property income separately
• Maintain contemporaneous documentation
• Register for Corporate Tax where nexus exists

Key Risk Areas We Commonly See

• Overseas group entities using UAE staff informally
• Sales teams concluding contracts on behalf of foreign principals
• Foreign consultants working from UAE offices
• Unregistered non-residents earning UAE property income

Early identification avoids penalties, reassessments, and reputational risk.

How German Fintax Consultancy Supports You

At German Fintax Consultancy, we assist UAE businesses with:

• PE & Nexus Risk Assessments
• FTA Registration for Non-Residents
• Contract & Agency Structure Reviews
• Corporate Tax Compliance & Filings
• FTA Audit & Dispute Support

Our approach is commercially pragmatic, legally robust, and fully aligned with UAE tax legislation.

FAQs

Q: Does a single short visit by a foreign employee automatically create a PE?

A: No, short meetings or incidental activities usually don’t, but repeated presence combined with contract conclusion or fixed place may create PE. Document purpose and timing.

Q: If Ministerial Decision No. 83 applies, is the non-resident fully safe from UAE tax?

A: It provides a protection where the strict conditions are met, but it’s narrow and fact-sensitive; it does not override separate nexus-based registration obligations.

Q: Who decides if there is a PE or nexus, the taxpayer or the FTA?

A: Both. The taxpayer must self-assess and register if required; the FTA has the power to review, query and audit. Professional advice and contemporaneous records strengthen your position.

Conclusion

Permanent Establishment and Nexus rules are cornerstones of UAE Corporate Tax compliance for businesses operating internationally. With increasing scrutiny from the FTA, proactive assessment and documentation are no longer optional.

Understanding these rules today protects your business from unexpected tax exposure tomorrow.