Cabinet Decision determining the conditions under which a Non-Resident Person is considered to have a “Nexus” in the UAE

The Cabinet of Ministers has issued Cabinet Decision No. 56 of 2023, effective from 1 June 2023 determining the conditions under which a Non-Resident Person shall have a Nexus in the UAE under the Federal Decree-Law No. 47 of 2022 (’the CT Law’).

• When shall a Non-Resident Person be said to have a Nexus in the State? Any juridical person that is a Non-Resident Person shall have a nexus in the State if he earns income from any Immovable Property located in the State. Immovable Property has been defined to mean any of the following:
  • Any area of land over which rights or interests or services can be created.
  • Any building, structure, or engineering work attached to the land permanently or attached to the seabed.
  • Any fixture or equipment which makes up a permanent part of the land or is permanently attached to the building, structure, or engineering work or attached to the seabed.

• What shall be the Taxable Income if there is a Nexus in the State?

Article 12 of the CT Law provides that a Non-Resident Person is subject to Corporate Tax on the Taxable Income attributable to the Nexus in the State.

The subject Decision specifies that the Taxable Income that is attributable to the Immovable Property in the State shall include income derived from the right in rem, sale, disposal, assignment, direct use, letting, including subletting, and any other form of exploitation of Immovable Property.

• Registration requirement under the CT Law

A Non-Resident Person that has a Nexus in the UAE, shall be required to register with the Federal Tax Authority and obtain a Tax Registration Number.

• Application of General Anti Avoidance Rules (‘GAAR’) provisions

The said Decision further states that an arrangement where a Non-Resident Person artificially transfers or otherwise disposes of its right in rem in any Immovable Property in the UAE to another person and that transfer or disposal is not for a valid commercial or other non-fiscal reason which reflects economic reality, such an arrangement would be considered to have been made to obtain a Corporate Tax advantage as per anti-avoidance rules stated under Article 50(1) of the CT Law.

The Minister of Finance shall issue the necessary Decisions for the implementation of the provisions of the subject Decision.

Key Takeaway

• The subject Ministerial Decision has clarified the meaning of the term Nexus and limited it to cover only the incomes earned by a Non-Resident Juridical Person if these are attributable to an Immovable Property located in the UAE.
• While the said Decision lays down the conditions for taxing a Non-Resident Juridical Person under the UAE CT Law by virtue of a Nexus in the UAE, the final taxability in each transaction may need to be determined basis of the CT Law read along with the applicable Double Tax Avoidance Agreement between the UAE and the home country of the Non-Resident Juridical Person (wherever available) in the situation of a conflict.

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