UAE Permanent Establishments – The Accidental Trap

For many UK business owners managing operations from Dubai, one of the least understood but most important concepts under the new UAE Corporate Tax Law is the creation of a PE¹. The general concept of a PE was introduced in Chapter 2 (The UK Corporate Exit), here the focus moves to applying those same principles under UAE tax law, and when invoking the UK -UAE DTA.

A PE is a taxable presence of a business outside its state of residence. In simple terms, it’s the point at which another country gains the right to tax part of a non-resident company’s profits because meaningful business activity takes place there.

On the surface, it might appear straightforward, the UK has a Double Tax Treaty with the UAE, and the UAE’s Corporate Tax rate is just 9% with profits taxed where economic activity occurs. However, in practice, determining when a PE exists and registering it correctly is crucial. Failure to do so can result in FTA penalties, and difficulty obtaining UK tax relief for UAE tax paid.

When a UAE Permanent Establishment Arises

A PE is not always easy identify and that’s what makes it one of the most common areas of confusion for UK business owners in Dubai.

A PE can be created even when there is no formal UAE entity, trade licence, office lease, or “branch”. What matters is the nature and duration of the activities performed from within the UAE, and whether they amount to a fixed place of business or the presence of a dependent agent acting on behalf of the UK company.

Under UAE domestic law, a PE can also arise where services are performed in the UAE for a prolonged period — often referred to as a “service PE.” This captures situations where individuals carry on activities in the UAE for more than 183 days in any 12-month period, even without a fixed place of business.

However, the UK–UAE Double Tax Treaty does not include a service PE clause. Where the treaty applies, only a fixed-place or dependent-agent PE can be recognised. In practice, a UK company that is treaty-resident and holds a UK tax residency certificate can rely on the treaty definition.

Examples of situations that may create a UAE PE include:

• A UK tech company sending developers to Dubai to work on a software project lasting for more than 183 days in a 12-month period.

• A UK company director who relocates to the UAE and continues to manage or coordinate UK operations from there.

• A UAE based sales or project manager who regularly negotiates or concludes contracts on behalf of the UK company.  

In contrast, purely preparatory or auxiliary activities such as limited marketing, attending trade shows, or short exploratory visits, usually do not create a PE.

Once a PE exists, it does not mean the entire UK Company profits become taxable in the UAE, only the profits attributable to that UAE based activity fall within the UAE tax net and taxed at 9% (on profits above AED375,000).   ‍

Registration & Relief

Once a UAE PE exists the UK company must register with the FTA within six months of becoming liable under the UAE Corporate Tax Law. Failure to register or file returns on time can result in penalties, and may also limit the company’s ability to claim UK tax relief, which is obtained either through a Double Tax Relief credit or, where elected, the Foreign Branch Exemption (FBE). In practice, this means the UK will either grant a credit for UAE tax paid against UK Corporation Tax on the same profits, or if the FBE has been elected in time exclude those profits entirely from UK taxation.

Registration with the FTA ensures that UAE tax is formally recognised, which is essential for the UK to grant Double Tax Relief or apply the FBE.

A PE may also choose to register as a licensed UAE branch, authorised by the relevant Emirate’s Department of Economy or a Free Zone Authority. This provides full legal recognition, allowing the company to trade, hire staff, and open local bank accounts. Tax-wise, both the registered branch and the unlicensed PE are treated the same — profits attributable to UAE operations are taxed at 9 percent — but the licensed branch ensures commercial compliance and credibility.

The UK–UAE Treaty and Branch Exemption

The UK–UAE Double Tax Treaty, prevents double taxation but does not eliminate the UAE’s right to tax a PE. The UAE will tax a PE at a rate of 9% (on profits over AED375,000). The UK-UAE DTA ensures that the UK relieves double taxation by:

• Allowing a credit against UK Corporation Tax for UAE tax paid or,

• Exempting the income entirely from UK Corporation Tax if the company elects FBE.

The FBE is a one-off, irrevocable election that applies to all current and future branches. It excludes branch profits from UK Corporation Tax, while any branch losses are ring-fenced and cannot offset UK profits. The exemption is not available where the branch benefits from a 0% or preferential tax regime, and the election must be made in writing to HMRC before the first accounting period in which the PE arises.

Best practice is to make the election only once the branch is profitable and fully compliant in the UAE. Either DTR or FBE eliminates double taxation, but only if the UAE branch or PE is properly registered, documented, and UK elections are made within the time limits.  

Practice summary - Almost all business activity carried out in or from the UAE now falls within the corporate tax regime even without a formal UAE entity. This is a complex area, and for any UK company with ongoing operations or management activity in the UAE, it is good practice to have its UAE tax-presence position reviewed to ensure that any exposure is identified and managed appropriately.

What Is a Permanent Establishment (PE)?

A Permanent Establishment (PE) is a taxable presence of a business outside its state of residence.
In simple terms, it’s the point at which another country gains the right to tax part of a company’s profits because meaningful business activity takes place there.

Under the UK–UAE Double Tax Treaty

Under the UK–UAE Double Tax Treaty, a PE may be created in two main ways:

• A fixed place of business, such as an office, workshop, or branch; or

• A dependent agent, being a person in the other country who habitually negotiates or concludes contracts on the company’s behalf.

(Construction sites and large projects also count if they exceed a set duration, but those are less common and are not the focus here.)

This treaty definition follows the OECD Model and is relatively narrow, it does not include the concept of a “service PE,” which appears in UAE domestic tax law.

Under UAE Domestic Tax Law

Under Article 14 of the UAE Corporate Tax Law and Ministerial Decision No. 132 of 2023, the UAE recognises three types of Permanent Establishment:

1. Fixed place PE – where a foreign business has a physical location in the UAE.

2. Dependent agent PE – where a person in the UAE habitually concludes contracts for the foreign company.

3. Service PE – where individuals carry out services or consultancy work in the UAE for more than 183 days in any 12-month period, even without a fixed place of business.

This “service PE” is broader than the UK–UAE treaty definition and can bring a company into the UAE tax net even when no formal branch, licence, or office exists.

Which Definition Applies?

For a UK-resident company that qualifies for treaty protection (typically evidenced by a UK Tax Residency Certificate), the treaty definition overrides UAE domestic law.
In that case, only a fixed-place or dependent-agent PE can be recognised — not a service PE.

However, where a business does not claim treaty relief, or fails to meet the criteria for treaty residence, the broader UAE domestic definition applies in full.

Why This Matters for UK Businesses

Many UK companies operating from Dubai assume that the treaty automatically protects them, but this isn’t always true.

• If the UK company maintains management activity or ongoing service projects in the UAE, it could be taxed under UAE domestic PE rules unless treaty protection is claimed.

• Registering a UAE presence and maintaining the right documentation (including a UK Tax Residency Certificate) ensures that the correct definition is applied and that any UAE tax paid can be relieved in the UK through Double Tax Relief or the Foreign Branch Exemption.