Determination of the Conditions under which the presence of a Natural Person in the UAE would not create a PE for a Non-Resident Person

On April 10, 2023, the Ministry of Finance issued Decision No. 83 of 2023 for prescribing the conditions under which the presence of a Natural Person in the UAE would not create a Permanent Establishment (PE) for a Non-Resident Person under the Federal Decree-Law No. 47 of 2022 on the “Taxation of Corporations and Businesses” (‘the CT Law’).

Clause 1 of Article 14 of the CT Law, provides that a Non-Resident Person would have a Permanent Establishment in the UAE if it has a fixed or permanent place in the UAE through which the Business of the Non-Resident Person, or any part thereof, is conducted.

As an exception to this rule, Clause 3 read with Clause 7 of the aforesaid Article provides that the mere presence of a natural person in the UAE would not tantamount to creating a fixed or permanent place in UAE and thereby a PE in the UAE of a Non-Resident Person,  where the presence of a Natural Person in UAE is a consequence of a temporary and exceptional situation and where the Natural Person employed by the Non- Resident person does not contribute to the core income generating activities of the Non-Resident or its related parties and the Non-Resident person does not earn any state sourced income from the UAE. A separate Ministerial decision was to be released prescribing these conditions.

Accordingly, the conditions (to be cumulatively met) wherein the presence of a natural person in the UAE shall be considered a consequence of a temporary and exceptional situation, as determined in the aforesaid Decision have been notified by this decision and these are as under:

• The presence of the natural person in the UAE is a consequence of exceptional circumstances of a public or private nature.

An exceptional circumstance has been defined as a situation or an event beyond the natural person’s control, which occurred while he was already in the UAE and which could not reasonably be predicted, and which prevented the person from leaving the UAE as originally planned. The decision further provides an illustrative list of exceptional circumstances of public and private nature[i].

• The exceptional circumstances cannot reasonably be predicted by the natural person or the Non-resident Person.
• The natural person does not express any intention to remain in the UAE when the exceptional circumstances end.
• The Non-Resident Person does not have a PE in the UAE before the occurrence of the exceptional circumstances.
• The Non-Resident Person did not consider that the natural person is creating a PE or deriving income in the UAE as per the tax legislation in other jurisdictions.

This decision will be effective post 15 days following the date of its publication.

Key takeaways

The Ministerial Decision clarifies that stay of a Natural Person in the UAE under circumstances beyond the control and will and as long as such a person does not contribute to the core income generating activities and deriving UAE sources income for its overseas employer, it would not result into creation of a Permanent Establishment of the overseas employer under Article 14 of the CT Law. Needless to state, in such situations, the onus to prove the bonafide will rest on the concerned Non-Resident Person based on the facts and circumstances.

[i] Kindly refer to Decision No 83 of 2023 for the list.

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