Permanent establishment: what it means in UAE tax.

What permanent establishment means

Also called: PE.

A permanent establishment is the level of presence that makes a foreign business taxable in the UAE. Under Article 14 of the Corporate Tax Law, a Non-Resident Person has a permanent establishment where it has a fixed or permanent place in the UAE through which its business is carried on, or where someone habitually concludes or negotiates contracts in the UAE on its behalf.

Once a permanent establishment exists, the foreign business becomes a Taxable Person and is taxed on the profit attributable to that establishment, using the same rates as a UAE company.

For UAE SMEs the term matters in two ways. A foreign client or supplier may create a UAE presence through staff or agents working with you. And a UAE business with activity abroad may create a permanent establishment in another country. Free zone companies also meet a local version of the rule: a place of business outside the free zone can be treated as a domestic permanent establishment, taxed at 9%.

How it works

• A fixed place includes a place of management, a branch, an office, a factory, a workshop and real property.
• A building site, construction or installation project counts only if it lasts more than six months, including connected activity by related parties.
• Places used only for storage, display, delivery, purchasing or other preparatory or auxiliary work are not a permanent establishment, unless activity is split up to avoid the rule.
• A dependent agent who habitually concludes contracts, or negotiates contracts that are signed without material change, creates a permanent establishment. A truly independent agent acting in the ordinary course of its business does not.
• Profit attributable to the permanent establishment is taxed under Article 12, Clause 3.

Worked example

A foreign software company opens a small Dubai office where two sales managers agree and sign contracts with UAE customers. The profit attributable to the Dubai office is AED 1,000,000.

Profit attributable to the Dubai permanent establishment	AED 1,000,000
First 375,000 at 0%	AED 0
Remaining 625,000 at 9%	AED 56,250
Corporate Tax payable	AED 56,250

The office and the contract signing staff create a permanent establishment, so the foreign company owes UAE Corporate Tax on the attributable profit.

Common mistakes

• Assuming that a small or informal office cannot be a permanent establishment. Size is not the test.
• Letting a local representative sign or finalise contracts for a foreign company without considering the dependent agent rule.
• For free zone companies, running a mainland shop or site and treating its income as Qualifying Income.

The law

• Federal Decree-Law No. 47 of 2022, as amended, Article 14 (Permanent Establishment)
• Federal Decree-Law No. 47 of 2022, as amended, Article 11, Clause 4 (Non-Resident Person) and Article 12, Clause 3 (tax base of a Non-Resident Person)
• Cabinet Decision No. 100 of 2023, Article 3, Clause 4 and Article 5 (domestic permanent establishment of a Qualifying Free Zone Person)

Frequently asked questions

Does a warehouse in Dubai create a permanent establishment?

Not if it is used only to store, display or deliver the foreign company's own goods, or for other preparatory or auxiliary work. If sales, services or management are also run from it, it can.

Is a UAE branch of a UAE company a permanent establishment?

No. The permanent establishment rule applies to Non-Resident Persons. Article 11 treats a UAE branch of a Resident Person as the same Taxable Person as its head office.

Related terms

Resident person · Taxable person · Qualifying Free Zone Person · Qualifying Income. See every term in the UAE tax glossary.

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