Saturday, June 10, 2023

Understanding Non-Resident Person's Nexus in the UAE for Corporate Taxation



The Ministry of Finance in the United Arab Emirates (UAE) has introduced Cabinet Decision No. 56 of 2023 to define the concept of Nexus for non-resident persons concerning corporate tax purposes. This decision aims to establish the criteria that determine the connection between non-resident individuals and the UAE, specifically concerning taxable income derived from immovable property. By comprehending these regulations, non-resident persons can better understand their tax obligations in the UAE.

Defining Nexus in the UAE

Article 2 of the Cabinet Decision outlines the conditions under which a non-resident person is considered to have a Nexus in the UAE. One crucial aspect is earning income from immovable property within the country. Taxable income related to immovable property encompasses various forms, such as income from rights in rem, sales, disposal, assignment, direct use, letting, subletting, and other forms of exploitation.

Registration Requirement

Non-resident individuals who possess a Nexus in the UAE are obliged to register with the relevant authority, as stated in Article 51 of the Corporate Tax Law. This requirement ensures compliance with tax regulations and facilitates the proper assessment of tax liabilities.

Qualifying Income and Activities

To provide further clarity, the UAE has issued Cabinet Decision No. 55 of 2023, which defines Qualifying Income, Qualifying Activities, and Excluded Activities. It is essential to understand these distinctions to determine the tax rates applicable to Qualifying Free Zone Persons in the UAE.

Different Tax Rates for Qualifying Free Zone Persons

Qualifying Free Zone Persons are subject to distinct tax rates based on the nature of their income. They enjoy a 0% tax rate on Qualifying Income, while a 9% tax rate is applied to Taxable Income that does not meet the criteria for Qualifying Income.

Understanding Qualifying Income

Article 3 of the Cabinet Decision outlines various categories of Qualifying Income. However, it is crucial to note that these income sources must not be related to domestic or foreign permanent establishments (PE) or the ownership or exploitation of immovable property. Qualifying Income includes revenue derived from transactions with other Free Zone Persons, except for income derived from Excluded Activities. It also encompasses income derived from transactions with Non-Free Zone Persons, specifically related to Qualifying Activities that are not Excluded Activities. Additionally, any other income can be considered Qualifying Income if it meets the de minimis requirements outlined in Article 4.

Qualifying Activities and De Minimis Requirements

Ministerial Decision No. 139 of 2023 provides further clarification regarding Qualifying Activities, Excluded Activities, and the de minimis requirements. Qualifying Activities encompass a range of operations, including manufacturing of goods or materials, processing of goods or materials, and holding of shares and other securities, among others.

The de minimis requirements are considered fulfilled if the non-qualifying revenue derived by the Qualifying Free Zone Person in a tax period does not exceed 5% of their total revenue in that period or AED 5,000,000, whichever is lower. This provision aims to simplify tax calculations and ease the burden for businesses operating in the UAE.


The UAE's regulations concerning non-resident persons' Nexus and Qualifying Free Zone Persons' taxation have a significant impact on their obligations and liabilities. By understanding these provisions and decisions, non-resident individuals can ensure compliance and gain clarity on their personal taxation matters within the UAE.