Ministry of Finance releases further Guidance on Permanent Establishments and the Requirement to Maintain Audited Financial Statements

Authored by: Sonia Dukes and Theunis Claassen

Following last year’s release of the Federal Decree-Law No. 47 of 2022 (the CT Law), corporate tax is set to commence for financial years starting on or after 1 June 2023. In anticipation of this commencement date a number of Ministerial and Cabinet Decisions have been released to provide further guidance on the application of the CT Law. This newsflash briefly considers two recent Ministerial Decisions.

Permanent Establishment - Conditions for a Temporary and Exceptional Presence in the State

In terms of Article 14(7)(a) of the CT Law, the Minister may prescribe the conditions under which the mere presence of a natural person in the State would not create a Permanent Establishment (PE) for a non-resident person, in particular where such presence is a consequence of a temporary and exceptional situation. 

Ministerial Decision No. 83 of 2023 (MD83) provides that the presence of a natural person in the State shall be considered a consequence of a temporary and exceptional situation where all of the following conditions are met:

1. The presence of the natural person in the State is a consequence of exceptional circumstances of a public or private nature.
2. The exceptional circumstances cannot reasonably be predicted by the natural person or the Non-Resident Person.
3. The natural person did not express any intention to remain in the State when the exceptional circumstances end.
4. The Non-Resident Person does not have a Permanent Establishment in the State before the occurrence of the exceptional circumstances.
5. The Non-Resident Person did not consider that the natural person is creating a Permanent Establishment or deriving income in the State as per the tax legislation applicable in other jurisdictions.

MD83 further provides that an exceptional circumstance is a situation or an event beyond the natural person's control, which occurred while he was already in the State, which he could not reasonably predict or prevent and which prevented him from leaving the State as originally planned, including but not limited to any of the following circumstances: 

1. With respect to the exceptional circumstances of a public nature:
   1. Adoption of public health measures by the competent authorities in the State or in the jurisdiction of the original workplace or by the World Health Organization.
   2. Imposition of travel restrictions by the competent authorities in the State or in the jurisdiction of the original workplace.
   3. Imposition of legal sanctions on the natural person preventing them from leaving the State’s Territory.
   4. Acts of war or occurrence of terrorist attacks.
   5. Occurrence of natural disasters or force majeure beyond reasonable control.
   6. Any other circumstances similar to those provided for in this paragraph as prescribed by the Authority.

2. With respect to the exceptional circumstances of a private nature:
   1. Occurrence of an emergency health condition affecting the natural person or their relatives up to the fourth degree, including by way of adoption or guardianship.
   2. Any other circumstances similar to those provided for in this paragraph as prescribed by the Authority.

Requirement to Maintain Audited Financials

In terms of Article 54(2) of the CT Law, the Minister may issue a decision requiring categories of Taxable Persons to prepare and maintain audited or certified financial statements.

Ministerial Decision No. 82 of 2023 (MD82) now provides that the following categories of Taxable Persons shall prepare and maintain audited financial statements:

1. A Taxable Person deriving Revenue exceeding AED50,000,000 during the relevant Tax Period.

2. A Qualifying Free Zone Person.

Our Hadef & Partners Tax Service Offering

It is important for taxpayers to remain up to date on the most recent Ministerial and Cabinet Decisions as released from time to time as these contain important information on the application of the CT Law as well as taxpayer rights an obligations.

Non-resident taxpayers should carefully consider their particular circumstances and evaluate whether they might be at risk of creating a PE in the State. Furthermore taxpayers should always ensure that they maintain the necessary documentation (including audited financial statements where applicable) to support their tax treatment. It is worth noting that Ministerial guidance is also anticipated shortly on the requisite transfer pricing documentation that will need to be maintained by taxpayers.     

In order to ensure that your business adopts the most beneficial tax structure while simultaneously mitigating unwanted tax risk, the Tax team at Hadef is available to discuss these and other questions you might have regarding your business’ tax affairs and its general preparedness in respect of the new corporate tax regime.  

In particular, Sonia Dukes and Theunis Claassen from our Tax Team, can guide you in identifying key areas of your business that will be impacted by the new corporate tax regime and assist you with specialist tax planning and the implementation of appropriate mechanisms to achieve optimal tax outcomes for your business.

Please feel free to contact Sonia Dukes, our Head of Tax, to arrange an initial discussion regarding your business and its taxes.

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.