Free Zone Branch/Permanent Establishment

Frequently Asked Questions

While a Qualifying Free Zone Person is not restricted from operating outside of the Free Zone, the income attributable to a domestic or foreign branch or Permanent Establishment of the Qualifying Free Zone Person will be subject to the standard UAE Corporate Tax rate of 9%.

However, the Qualifying Free Zone Person can claim relief from any double taxation under the Corporate Tax Law or the applicable double tax treaty for foreign Permanent Establishments.

The determination of a domestic or foreign Permanent Establishment follows the criteria outlined in the Corporate Tax Law for identifying when a Non-Resident Person has a Permanent Establishment in the UAE.

A domestic or foreign Permanent Establishment occurs when the Qualifying Free Zone Person:

  • Has a fixed or permanent place outside a Free Zone where its business is conducted, or
  • There is a person who has and regularly exercises authority to conduct business outside a Free Zone on behalf of the Qualifying Free Zone Person.

Non-Qualifying Free Zone Persons will not need to establish whether they have a domestic Permanent Establishment as they will be subject to the standard UAE Corporate Tax regime for all their income.

The income and expenses attributable to a domestic or foreign Permanent Establishment of a Qualifying Free Zone Person must be determined in accordance with internationally accepted profit attribution methods, such as the Authorized OECD Approach, and the relevant provisions of the Corporate Tax Law. This entails applying the arm’s length principle to any transactions between the Qualifying Free Zone Person and its Permanent Establishment, as if the Permanent Establishment were an independent entity.

To mitigate double taxation on the profits of a foreign Permanent Establishment subject to Corporate Tax in both the UAE and the relevant foreign country, the following mechanisms may be available:

  • Application of an applicable double tax agreement (Article 66 of Corporate Tax Law)
  • Using the Foreign Permanent Establishment Exemption (Article 24 of Corporate Tax Law)
  • Claiming a credit for any foreign taxes paid (Article 47 of Corporate Tax Law)

Schedule a Call Back

Schedule a consultation today and take the first step towards your goals.