Understanding Permanent Establishment Risks

As more UK business owners relocate to Dubai while continuing to manage their UK companies remotely, the question of whether they have created a Permanent Establishment (PE) in the UAE has become increasingly common.

On the surface, it might look simple, the UK has a Double Tax Treaty with the UAE, and the UAE’s corporate tax rate is just 9%. But in practice, how and when your UAE activities are recognised can make all the difference — and getting this wrong can lead to double taxation, penalties, and complex compliance challenges.

When does a UAE Permanent Establishment arise?

A Permanent Establishment (PE) isn’t always easy to 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’s no formal UAE entity, office lease, or “branch” in name. What matters is the nature and duration of the activities carried out in 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 Article 14 of the UAE Corporate Tax Law, a PE exists where a foreign company (such as a UK entity):

• has a fixed place of business in the UAE through which it conducts its business; or
• has a dependent agent who habitually acts on its behalf.

Examples of situations that may create a UAE PE include:

• A UK tech company sending developers to Dubai to work on a software project for more than six months.
• A UK company director who relocates to the UAE and continues to manage or coordinate UK operations from there.
• A sales or project manager in Dubai regularly negotiating or concluding contracts on behalf of the UK company.

In contrast, purely preparatory or auxiliary activities — such as limited marketing, attending trade shows, or short-term exploratory visits — generally do not create a PE. Once a PE is considered to exist, only the profits attributable to that UAE PE fall within the UAE tax net — taxed at 9%, with a 0% rate on the first AED 375,000.

The importance of FTA registration

Identifying a PE is only the first step, once a UAE PE exists even unintentionally the company moves from a grey area into a compliance obligation under UAE Corporate Tax Law. If a PE exists, the UK entity must register with the Federal Tax Authority (FTA), typically within three months of becoming liable. Failure to register or file returns can result in penalties, as well as lost opportunities to claim relief in the UK. Registration ensures the UAE formally recognises the taxable presence which is essential for the UK to accept that tax has been paid overseas when assessing relief. ‍

How the UK taxes foreign PEs

A UK-resident company is subject to UK Corporation Tax on worldwide profits, including those of any foreign PEs, unless it has elected for the foreign branch exemption. The branch exemption

• The election must be made before the first accounting period to which it will apply (it cannot be backdated).
• Once made, it’s irrevocable and applies to all of the company’s foreign branches.
• If not elected, the UK taxes those profits but offers Double Tax Relief (DTR) for foreign tax paid.

Double Tax Relief (DTR) — how and when it applies

The UK–UAE Double Tax Treaty is designed to prevent double taxation by allowing a credit for UAE tax paid against UK Corporation Tax on the same profits.

However, that relief isn’t automatic, it requires that:

1. The UAE tax has been properly assessed and paid, and
2. The UK company makes its DTR claim within the statutory time limits — normally four years from the end of the UK accounting period, or one year after the foreign tax is paid, whichever is later.

If a UAE PE isn’t registered promptly, or if UAE tax is assessed late, the UK claim window can close before the company becomes eligible for relief. ‍

‍‍

Can a UK company be taxed twice?

In most cases, permanent double taxation is avoided because the treaty relief ultimately applies.
But problems arise from timing and non-recognition:

• Until the UAE has formally recognised and taxed the PE, HMRC will not grant credit relief.
• If the UK claim window closes before that point, relief can be lost permanently.
• Missing FTA registration deadlines can therefore create both penalties and temporary double-tax exposure.

For many UK business owners in the UAE, the biggest risk isn’t the 9% tax it is the unintentional non-compliance. Understanding when a Permanent Establishment arises, registering it promptly, and coordinating your UK and UAE filings ensures that relief mechanisms like the branch exemption and double tax relief work as intended. Getting the structure right from the start avoids timing issues, unnecessary tax exposure, and FTA penalties, allowing you to focus on growing your business confidently across borders.

Steps to manage and minimise PE risk

1. Assess your UAE presence — Review your management activities, staff roles, and physical presence to identify potential PE triggers. ‍
2. Register early with the FTA — Timely registration avoids penalties and establishes a recognised taxable presence. ‍
3. Document everything — Keep clear evidence of where decisions are made, where contracts are signed, and how profits are generated. ‍
4. Align your UK filings — Monitor the branch-exemption election and DTR claim deadlines closely. ‍
5. Seek professional advice — PE exposure is fact-specific. A cross-border tax review can prevent costly surprises.

‍