In the United Arab Emirates, important obligations arise from the corporate tax legislation for legal entities established abroad. A key aspect is the so-called "Nexus," a legal connection point that determines when legal entities without a seat or management in the UAE (e.g., a German GmbH) become subject to limited tax liability.
According to Article 11 No. 4(c) of the Corporate Tax Law, entities without a seat and place of management are subject to tax in the UAE if they have a Nexus in the UAE. According to Cabinet Decision No. 56 of 2023, this Nexus exists when legal entities without a seat or management in the UAE derive income from immovable property located in the UAE. Immovable property includes not only land and buildings, but also any structures and installations firmly attached to the ground.
The income generated from such property can be diverse, ranging from rental and lease income to proceeds from the sale and disposal of the property, as well as income from direct use. Each of these scenarios entails tax obligations and, unlike income from other sources in the UAE, establishing a Nexus requires the affected companies to register in the UAE.
The registration requirement is particularly significant because many foreign companies do not have a commercial license in the UAE and thus are subject to special regulations. According to Decision No. 3 of the UAE Tax Authority, companies that established a Nexus before the cut-off date of March 1, 2024, must register by May 31, 2024. For Nexus established after this date, the registration deadline is three months after the Nexus is established.
The corporate tax regulation in the UAE poses a significant challenge for international companies that must be taxed due to immovable property in the UAE. These regulations highlight the necessity for companies to carefully review their tax obligations and take appropriate administrative steps to ensure compliance with the UAE tax authorities. Early and thorough engagement with these regulations can help avoid financial and legal surprises.
