Review of Business Agreements from the UAE CT perspective

About the client

The client is a wholly owned subsidiary of foreign-based company and is mainly engaged in the business promotion activities i.e. marketing support services.

The major income earned by the client is in the form of commission on the revenue earned from the distribution of electronic products in the UAE.

Problem statement/business context

• Non –Resident parent entity in foreign was exposed to establishment of Permanent Establishment (PE) in the form of subsidiary company in the UAE.
• With the introduction of Corporate Tax in the UAE, the Client engaged us to review the service agreement between Non – Resident parent entity and Subsidiary company in the UAE from UAE CT perspective, so as to mitigate its PE exposure in the UAE.

Solution

Conducted a thorough review of the service agreement between the Non-resident parent company and the subsidiary company in the UAE and highlighted the provisions, which may attract potential PE risk for the Non –Resident parent company in the UAE.

Relevant amendments were proposed in the clauses of the aforesaid service agreement to mitigate potential PE risk for the Non – Resident parent company in the UAE.

Timeline

3 weeks

Key geographies delivered

• United Arab Emirates
• Foreign location of the company

Outcome/benefits

• Suggested factors on how to mitigate the PE risk of Non-Resident parent company in the UAE.
• Without prejudice, whether PE risk or not in the UAE, suggestion to develop the pricing model in accordance with the arm’s length principles which requires benchmarking of inter-company transactions.