Off-Plan Real Estate: Risks and Rewards

Dubai’s real estate market has experienced significant growth in prices in the past few years. The average sales prices for residential properties in Dubai increased by 12% between 2021 and 2022 to reach AED 1,203 per sq ft. This is expected to increase even more by the end of 2023. In this market, off-plan properties appear to be a more affordable option to many purchasers as compared to completed properties. For the end user, low first payments and attractive payment plans mean affordability. This has been an important factor in boosting the off-plan market in Dubai over the past few years.


However, it is critical that prospective buyers do their homework; conduct due diligence; engage a reputable lawyer who understands the off-plan market in Dubai and can protect their rights; and ensure that they purchase a quality off-plan investment.


While the Dubai Land Department (DLD) recorded 14,712 off-plan sales in Q2 2023, memories of the 2008/2009 market crash still loom large. As a result, it is important to be aware of applicable real estate laws.


Legal Protection


Off-plan real estate investment in Dubai is governed by a set of real estate laws and regulations aimed at protecting buyers’ interest, the most important of which are discussed below.


The Interim Registration law (Law 13 of 2008 (as amended)) requires all sales (and all other disposals) of off-plan units to be registered on the interim real estate register maintained by the DLD. If a sale is not registered, it is considered null and void.


The Interim Registration law also governs the developer’s right to terminate a sale contract for an off-plan unit in the event that the buyer defaults, and sets out (i) the termination procedure to be followed; and (ii) the monies that may be retained by the developer in the event of termination which is linked to the percentage of completion of the off-plan unit as follows:


  • if the percentage of completion of the unit exceeds 80%, the developer may retain up to 40% of the price of the unit specified in the off-plan sale contract;


  • if the percentage of completion of the unit is between 60% and 80%, the developer may retain up to 40% of the price of the unit specified in the off-plan sale contract;


  • if the developer has commenced construction work on the project pursuant to the designs approved by the competent authorities and the percentage of completion of the real estate unit is less than 60%, the developer may retain up to 25% of the price of the real estate unit specified in the off-plan sale contract; and


  • if the developer has not commenced the execution of the project for reasons beyond his control and without negligence on his part, the developer must refund all purchase price amounts paid by the buyer.


Furthermore, the Trust Account law (Law 8 of 2007) protects buyers by requiring developers selling off-plan units to be registered with the Real Estate Regulatory Agency (RERA), and to deposit all amounts paid by purchasers into an escrow account with an escrow agent (bank) accredited by the DLD. The amounts deposited in the escrow account are exclusively allocated for the purposes related to the development of the particular real estate project (and directly related activities) and may only be withdrawn by the developer on application to RERA in accordance with the law.


Although off-plan buyers can take comfort in the protections afforded by the legislation described above, we recommend that purchasers check that:


  • the real estate project is registered with RERA;


  • there is an escrow account for the real estate project;


  • the percentage of completion of the real estate project and the expected date of completion;


  • the developer is registered with RERA;


  • the developer owns the land or there is a development agreement between the owner and the developer; and


  • the developer has the required permits and approvals from the DLD and RERA to sell units off-plan in that particular real estate project.


Dubai on the Rise


Dubai’s off-plan real estate laws and regulations serve to increase investor confidence and attract more foreign investment.


With respect to the market, there are attractive deals to be had from developers in Dubai today and off- plan enquiries remain high. However, today’s off-plan buyers should shop around and choose a quality product that will deliver long term sustainable returns, or provide a stable, affordable home.


Dubai remains a very attractive proposition for domestic and international investors alike with globally high rental yields and reasonable prices per square foot. Dubai itself continues to attract hard working and entrepreneurial people from across the world and the prospects of the market are very bright as more people choose to settle and live in the UAE. There is much to be positive about regarding the future of the Dubai property market and the off-plan sector will continue to play a big role in such market. ■

UAE: New End of Service Benefits Scheme for Employees in the Private Sector

The UAE Cabinet recently approved a scheme for the establishment of savings and investment funds for employees primarily in the private sector (including free zones). This scheme is an alternative to the current system of payment of end-of-service benefits (gratuity) to an employee at the end of his employment.


Participation in the scheme will be optional for employers. Under this scheme, the participating employer will be required to make a monthly contribution to the selected fund.


The funds will be supervised by the UAE Securities and Commodities Authority in coordination with the Ministry of Human Resources and Emiratization.


The scheme is likely to have three investments options: (i) risk-free investment option (which will maintain the capital), (ii) low, medium or high risk-based investment options; and (iii) sharia-complaint investment option.


An employee will be entitled to receive his savings (contributions made by the employer) and returns on investments (as per the investment option selected) at the end of his employment. If employment has been terminated, it is likely that an employee will have the option to continue with the fund (without additional contribution from the previous employer) by not withdrawing his savings and returns.


Participating employers will not be required to pay end-of-service gratuity to the employees at the end of their employment. However, other benefits such as return ticket/air fare, payment of unused annual leaves and other contractual benefits will still be required to be paid by the employers at the end of an employee’s employment.


Additionally, employers are currently not required to make a provision in their accounting books for their end-of-service benefits liability. End-of-service benefits are only due and payable to an employee at the end of his employment. In case an employer is in financial difficulties, such an employer is often unable to make payment of the end of service benefits to its employees. However, under the new scheme, employers will be required to make monthly contribution. Even if an employer is facing financial difficulties, if the said employer has already made monthly contributions, at least certain part of the end-of-service benefits of its employees will be protected.


There is currently no similar scheme in the UAE except for the pension scheme that is only applicable to GCC national employees and the DIFC Employee Workplace Savings Scheme (DEWS).


Detailed legislation regarding the scheme and its implementation is expected in due course. ■

Asymmetric jurisdiction agreements; DIFC Courts give guidance

Asymmetric jurisdiction clauses (or unilateral option clauses as they are also sometimes described) confer on one contracting party the option to bring proceedings in a court or forum of its choosing, while restricting the counterparty’s ability to bring claims to a single jurisdiction. Such clauses could provide, for example, that the party who enjoys the benefit of the provision may unilaterally opt for either arbitration or court litigation to bring a claim, or that its claims may be brought in any court of competent jurisdiction of its choice.


Asymmetrical clauses are commonly found in financing transactions (primarily for the benefit of lenders) and give lenders the discretion to initiate action in whichever jurisdiction best serves their interests. However, such clauses have to be carefully drafted and can be subject to challenge (particularly those that include asymmetrical options to arbitrate). Such clauses have in the past been held to be unenforceable in certain jurisdictions (e.g., France, Russia), usually on the grounds that they violate public policy.




The DIFC Courts, in Lara Basem Musa Khoury v Mashreq Bank Psc [2022] DIFC CA 007 dealt with the question of whether Ms. Khoury could bring a claim against the Bank before the DIFC Court where the right to do so under their agreement was conferred only on the Bank. The relevant provision reads as follows:


“This Agreement shall be governed by, and be construed in accordance with, the laws of the Dubai International Financial Centre (‘DIFC’). The [Claimant] agrees, for the benefit of the Bank, that any legal action or proceedings arising out of or in connection with this Agreement against it or any of its assets may be brought in the relevant courts of the DIFC”.


“The [Claimant] irrevocably and unconditionally submits to the jurisdiction of the relevant courts of the DIFC. The submission to such Jurisdiction shall not (and shall not be construed so as to) limit the right of the Bank to take proceedings against the [Claimant] in the courts of any other competent jurisdiction…”.


It was Ms. Khoury’s contention that, in the absence of a provision dealing with claims that the customer may have against the bank, the forgoing clause should be interpreted such that she was entitled to bring proceedings against the Bank in the DIFC Courts. The Bank argued that the clause gave only the Bank the unilateral right to bring claims against Ms. Khoury in the DIFC Courts, and that the same right was not reciprocally available to Ms. Khoury.


The DIFC Court of First Instance ruled that Ms. Khoury had agreed that claims could be brought against her in the DIFC Courts, but that the Bank had made no such reciprocal agreement. As a result, Ms. Khoury would only be able to sue the Bank in the Courts of Dubai, where the Bank was registered and incorporated. Ms. Khoury appealed the ruling to the Court of Appeal.


The Appeal


The DIFC Court of Appeal, while noting that the asymmetry of the clause “makes for a degree of disquiet, serving to reflect the imbalance between the comparative market power of banks as contrasted with their customers”, went on to dismiss Ms. Khoury’s appeal. The Court rejected Ms. Khoury’s argument that the clause was an ‘opt-in’ clause that conferred jurisdiction on the DIFC Courts by virtue of Article 5(A)2[1] of the Judicial Authority Law because the agreement lacked a clear and specific provision by which Ms. Khoury could bring her claim before the DIFC Courts, holding that the clause was only for the benefit of the Bank.


The Court of Appeal specifically commented that asymmetrical clauses “are familiar as a matter of international banking practice and, in part at least, serve a legitimate commercial purpose” while citing with approval the English Court decision in AG v Pauline Shipping Ltd [2017] EWHC 161 (Comm), which noted that “[a]symmetric jurisdiction agreements are a long-established and practical feature of international financial documentation…”




Even though the Bank ultimately succeeded, the extensive debate in the Khoury case demonstrates that asymmetrical dispute resolution clauses can lend themselves to challenge and must be carefully drafted. It is to be noted that the Khoury case turned on the interpretation of the clause, rather than the enforceability of a unilateral option clause as a matter of principle. Ms. Khoury does not appear to have argued that an asymmetrical clause was repugnant per se. Nevertheless, it is clear that this case represents an affirmative acceptance of asymmetric dispute resolution contracts and the validity of such clauses by the Courts of the DIFC. The Courts of the ADGM had also previously adopted the common law approach and affirmed such clauses.[2]


It should be noted that, while the two common law courts in the UAE appear to have affirmatively accepted the enforceability of asymmetrical dispute resolution clauses, the position as to their enforceability in the UAE federal courts (or courts of Dubai outside of the DIFC) is far from certain. The civil law courts in the UAE will likely not be as open to enforcing such provisions, and could invoke principles of public policy, requirements of good faith and balance of rights such that a party seeking enforcement would have a higher threshold to meet. The enforcement of unilateral option clauses that confer on one party the exclusive right to opt for arbitration could be particularly problematic, given that the UAE Courts have consistently held that arbitration is an exceptional form of dispute resolution and that, in order to divest the Court from its ordinary jurisdiction, there must exist a clear and unambiguous agreement evidencing the joint intention of the contracting parties to resolve their disputes by arbitration. Whether a unilateral option clause would satisfy such requirement remains to be seen. ■





[1]Article 5(A)2 “The Court of First Instance may hear and determine any civil or commercial claims or actions where the parties agree in writing to file such claim or action with it whether before or after the dispute arises, provided that such agreement is made pursuant to specific, clear and express provisions.”


[2] A3 v B3 [2019] ADGM CFI 0004


Dubai Court of Appeal shuts down ‘guerilla tactics’ aimed at bypassing arbitration agreements

There are a number of reasons why parties who have agreed to arbitrate disputes (ordinarily by way of an arbitration clause in a contract) may later wish to litigate their dispute in the UAE courts. A common reason is the cost of arbitration, which can be quite significant compared to the cost of litigating in the UAE Courts. Further reasons may be that the party wishes to take advantage of the relative unpredictability of outcomes in the UAE Courts, which do not follow a system of binding precedent as understood in common law jurisdictions and, perhaps more importantly, do not award legal costs except in a token amount, thereby minimizing the cost of a failed claim.


Irrespective of the reason, a popular strategy deployed by parties wishing to bypass an arbitration agreement and invoke the jurisdiction of the UAE Courts (ordinarily a claimant) is to add parties who are not party to the arbitration agreement, as in cases which involve multiple defendants, a UAE court which has jurisdiction over one defendant has jurisdiction over all the defendants.


In a recent judgment issued by the Dubai Court of Appeal, this strategy was comprehensively rejected. The case in question involved a contract for the construction of a pavilion at Expo 2020, which contained an arbitration clause. The contractor asserted several claims against the employer and, in an attempt to bring the matter within the jurisdiction of the Dubai Court, impleaded the employer’s manager as a co-defendant.


The Dubai Court of Appeal saw through this stratagem, and held that the courts have no jurisdiction over the dispute because the proper parties to the contract have agreed to resolve disputes arising out of the contract by arbitration. In its judgment, the Dubai Court of Appeal laid down several clear principles:


– while a claimant may add multiple defendants, and while a court which has jurisdiction over one defendant will have jurisdiction over all the defendants, there must be ‘real claims’ against each of the defendants;


– what constitutes ‘real claims’ is a matter to be determined by the trial court based on the evidence and any applicable presumptions of law [in this case, the court found that the claimant’s cause of action was clearly a contractual one, and there were no ‘real claims’ against individuals who were not party to the contract; and


– adding parties solely for the purpose of invoking the court’s jurisdiction is not permitted.


Interestingly, while the multiplicity of defendants was the principal argument advanced by the claimant in this case in its attempt to bypass the arbitration agreement, this issue was not the basis of the judgment of the Court of First Instance which held that the courts have jurisdiction. The basis of the judgment of the Court of First Instance was that the amendment to the contract between the parties (necessitated by the delay to Expo 2020 due to the Covid-19 pandemic) did not expressly refer to the arbitration clause, and consequently that it did not meet the requirements of Article 7(2)(b) of the UAE Federal Arbitration Law, which provides that an arbitration agreement shall be deemed to be in writing if there is a reference in a written contract to any model contract, international agreement, or any other document containing an arbitration clause and the reference is such as to make that clause part of the contract. This finding was set aside by the Dubai Court of Appeal, which held that there was no requirement to expressly refer to the arbitration clause as the amendment clearly formed part and parcel of the contract which contained the arbitration clause (i.e. as opposed to standard terms or a different contract containing an arbitration clause which is incorporated by reference). Nevertheless, following the judgment of the Court of First Instance, the prudent practice appears to be to make express reference to an arbitration clause in the main document in all subsequent contractual documents, even where the subsequent document is only an amendment to the contract. ■


ESG in the UAE: Has it arrived?

Over the past few years, the United Arab Emirates has witnessed an increase in awareness and significance of environmental, social and governance (ESG) issues. While businesses in the UAE have begun to acknowledge that conscious efforts towards ESG compliance is imperative for growth and longevity of their business, the question remains whether ESG compliance can truly be said to now form a part of the UAE compliance ecosystem.


ESG significance on the rise: Key Factors


M&A has been on a steady rise in the MENA region (with the UAE continuing to demonstrate resilience despite global headwinds). ESG compliance has become a point of concern for investors, who are frequently concerned to fully investigate and understand the nature and extent of ESG compliance by UAE targets.


In cases where such compliance can be successfully demonstrated, investors derive comfort regarding sustainable financial performance and the ability of the management to identify and account for long term business risks. On the other hand, a lack of transparency concerning ESG compliance often results in questions regarding the sustainability of the business and management’s lack of sensitivity to an issue that is increasingly important to investors and stakeholders.


As a consequence, ESG rating agencies are often engaged by potential investors for the purposes of conducting an ESG diligence which has led to the “ESG Score/Ratings” becoming increasingly significant in evaluating, and to an extent negotiating certain contours of an investment. In most cases, the ESG score/rating will have a direct impact on the valuation of a target.


Good-to-have or must-have: Where do we stand?


While the UAE business ecosystem awaits further and more granular regulation of ESG matters, the question arises whether UAE businesses should of their own initiative, take cognizance of an issue that is now at the core of many investment mandates. Improved capability of risk management, higher brand value, advantage over non-compliant competitors and potentially reduced business costs resulting in higher valuation are only a few of the factors that influence the decision-making process. ■

UAE Cabinet Decision No. (49) of 2023 dated 8 May 2023 (effective 1 June 2023)

UAE Cabinet Decision No. (49) of 2023 dated 8 May 2023 (effective 1 June 2023) states that for the purposes of Clause 6 of Article 11 of the Corporate Tax (CT) Law, Businesses or Business Activities conducted by a resident or non-resident natural person shall be subject to CT only where the total Turnover exceeds AED 1,000,000 for a calendar year.   Importantly, the Decision also states that activities of resident or non-resident natural persons that result in Turnover from Wage, Personal Investment Income or Real Estate Investment Income shall not be considered Businesses or Business Activities that are subject to the CT Law.  Therefore, such natural persons shall not be required to register for CT assuming they do not conduct any other Businesses or Business Activities that are subject to CT. ■

Emiratisation deadline for the private sector set at 30 June for 2023 half yearly targets

The Ministry of Human Resources and Emiratisation has announced 30 June 2023 as the deadline for private sector companies with 50 employees or more to achieve their half-yearly Emiratisation targets, set at 1% of skilled jobs. This is in addition to the 2% Emiratisation that companies should have achieved by the end of 2022.


Organizations that failed to meet the 2022 targets were subject to a fine of AED 6,000 a month or AED 72,000 a year for each Emirati national not hired as per the Emiratisation norms. Post June 2023, fines will be applied on non-compliant companies for not achieving the required half-yearly rate for 2023 as well as the 2022 targets. A penalty of AED 42,000 (on half yearly basis) will be applied for every Emirati national not hired as per the Emiratisation norms by 30 June 2023. The calculation is based on a penalty of AED 7,000 per month for 2023 and will increase by AED 1,000 annually for each year until 2026.


Please refer to our earlier inBrief, where we had provided an overview of the Emiratisation requirements, applicability thresholds and the consequences of non-compliance, for further details. ■

The Ministry of Finance publishes an Explanatory Guide on the Corporate Tax Law

Last Friday, on 12 May 2023, the UAE Ministry of Finance (Ministry) published an Explanatory Guide which provides an explanation of the meaning and intended effect of each article of the Corporate Tax (CT) Law. The Explanatory Guide may be accessed here.


The Introduction to the Explanatory Guide states that the Explanatory Guide may be used in interpreting the CT Law and how particular provisions of the CT Law may need to be applied, and that it must be read in conjunction with the CT Law and the relevant decisions issued by the Cabinet, the Ministry and the Federal Tax Authority. The Introduction also makes it clear that the Explanatory Guide is not meant to be a comprehensive description of the CT Law and its implementing decisions.


Some highlights of the Explanatory Guide include:


  • For CT purposes, a civil company (which under the UAE Civil Code enjoys the status of a separate legal person) will not be treated as a separate legal person and be treated as the natural person or persons owning them because of their direct relationship and control over the Business and their unlimited liability for the debts and other obligations of the Business;


  • Certain qualifying activities conducted by free zone persons are eligible for the zero percent CT benefit;


  • Tax residency for CT purposes is not dependent on legal residency;


  • No time limitation for carry forward of tax losses;


  • Details transfer pricing documentation requirements and thresholds for maintaining master file and local file;


  • Scope of ‘Qualifying Income’ for free zone establishments remain undefined; and


  • Acknowledgement that taxpayers are permitted to optimize their tax position in a manner consistent with the CT Law.


The Afridi & Angell Tax Team is closely reviewing the 106-page Explanatory Guide and will continue to provide more details in the coming days. ■

Planning for Canada’s Departure Tax

We have written previously about the importance of planning for the tax consequences of emigrating from Canada; see our previous inBrief here. In this inBrief, we will describe a number of more advanced planning options for Canadian residents who are considering giving up their Canadian residency. Bear in mind that not all of the approaches discussed in this inBrief will be right for any particular person, as each person’s individual circumstances will differ.


Upon becoming a non-resident, Canada imposes a departure tax in the form of deemed disposition of certain capital assets, causing any unrealized capital gains to be realized in the year of departure. It is common for high net-worth individuals in Canada to hold their public and private investments through holding companies (Holdcos), so one major source of capital gains upon emigration is the shares they own in their Holdcos. We will also touch upon foreign trust planning, Canadian real estate holdings, and charitable donations.


With respect to Holdco shares, much emigration planning focuses on how to minimize the departure tax by reducing the fair market value of those shares prior to exit. Some potential options to achieve this may include.


Strategic Dividends: Causing Holdco to pay out dividends to the maximum extent it can out of tax-preferential accounts maintained by it, which may include Holdco’s capital dividend account (CDA), eligible refundable dividend tax on hand (ERDTOH) and non-eligible refundable dividend tax on hand (NERDTOH). Dividends can be paid out of Holdco’s CDA tax-free, and dividends that are paid out of its ERDTOH and NERDTOH result in tax refunds to the company, making them somewhat more tax-efficient. In advance of doing this, it may be advisable for Holdco to sell some of its investments, thereby realizing capital gains and creating additional CDA that can be dividend out tax free. The payment of dividends in this manner will reduce the fair market value of Holdco’s shares, thereby reducing the amount of the deemed capital gain on such shares upon emigration.


The other reason you should be sure to dividend out all CDA in any Holdco prior to emigration is because such dividends lose their tax-free status when paid to a non-resident shareholder. Once you are a non-resident, Holdco will be required to apply a withholding tax to any dividends paid to you, and you will be taxed on such dividends personally under the laws of your new country of residence. If Holdco will continue to operate after you emigrate and will continue to have Canadian resident shareholders, it would be prudent to create separate classes of shares that allow for dividends out of CDA to be paid to Canadian shareholders (who can receive them tax-free), and other dividends to be paid to you (as you may very well be in a position to receive them much more tax-efficiently than a Canadian shareholder[1]).


Life Insurance: Cause Holdco to acquire life insurance on your life, acquiring a policy that is maximum funded at the outset but with attributes that result in the policy having a low fair market value. This expenditure in exchange for an asset that is initially low-value (the life insurance policy) reduces the value of the Holdco shares. There are several other potential benefits to this approach that stem from the value of the insurance policy itself, because its value will increase after you have emigrated and can be leveraged as a valuable asset of Holdco going forward (i.e., front-end or back-end leveraging strategies to extract value from the policy during your life), in addition to the security of the death benefit.


If Holdco does leverage the life insurance policy by borrowing against it, Holdco will be able to use those funds for income-generating investments and will be permitted to deduct the interest on the loan. This can be an attractive arrangement.


You may wish to consider whether it makes sense to introduce a foreign ownership structure that is more forward-looking and supports your wealth and estate plans more broadly. For example, if you intend to establish a family trust structure in an offshore jurisdiction as part of your post-emigration planning, it may be prudent to transfer the shares of Holdco to the foreign trust at approximately the same time that you emigrate from Canada. You would do this after having taken any available steps to reduce the value of Holdco’s shares, as described above. If Holdco’s value is derived primarily from Canadian real estate holdings, this approach could be beneficial if you foresee a sale of Holdco in the future. In that case Holdco shares will be “taxable Canadian property” and will be taxed in Canada, and you can reduce the impact of that tax by reducing the value of Holdco’s shares through dividends after you are a non-resident (at the lower beneficial treaty rate).


There are special considerations with respect to Canadian real estate holdings. Canadian real estate is “taxable Canadian property” and is not subject to the deemed disposition upon emigration.[2] How you can best structure your holding of Canadian real estate as a non-resident will depend on whether it is property for your personal use, or if it is a rental property. If it is for personal use, you will need to consider whether your ownership of it puts you at risk of being deemed to be Canadian resident for tax purposes even after your emigration.[3] If it is a rental property, you will likely wish to transfer ownership of it to a Canadian holding company, otherwise the tenant will be required to withhold an amount in respect of tax from every rent payment they make to you as a non-resident owner.


Finally, an option that is not to be overlooked is simply making a charitable donation of assets that have significant accrued capital gains before you emigrate, which will have the effect of reducing both the value of your holdings as well as reducing your departure tax exposure. It will also generate a charitable tax credit which you may use to further reduce your tax burden on exit. If your charitable intentions are relatively large and you wish to maintain some ongoing involvement and control over the how the endowment is managed, you may wish to establish a charitable foundation instead of simply donating funds or assets to an existing charity. A charitable foundation that is registered as such with the Canada Revenue Agency will qualify as a registered charity and can issue charitable tax receipts, and can carry out activities and funding in line with its charitable purpose in Canada and overseas. The charitable options should, of course, only be considered where the primary objective is furthering the chosen charitable purpose with any tax incentives being secondary.


The strategies discussed in this inBrief are intended to illustrate that there may be effective pre-emigration planning that you can consider, aimed at reducing the impact of Canada’s departure tax. All such strategies are complex in their planning and application and professional advice is required to evaluate and execute them. If you are interested in exploring planning of this nature, please contact us and we will be delighted to assist. ■


[1] The withholding tax that Holdco would be required to apply to dividends paid to you as a non-resident would be a default rate of 25% if you reside in a non-treaty country, or could be 5%, 10% or 15% if you  reside in a treaty country.  You may need to hold your shares through a company established in your new country of residency to access these reduced rates.

[2] You may elect to trigger a deemed disposition of taxable Canadian property if you prefer, in order to trigger gains or losses which you are able to offset against other losses or gains on exit, respectively.

[3] Very briefly, owning a residential property which is available for your personal use in Canada will cause you to be deemed tax resident in Canada, unless there are tie-breaker rules in the applicable treaty with your new country of residence.  Ensuring that you will indeed be non-resident for tax purposes is a critical aspect of non-residency planning.


UAE Corporate Tax Law (CT) – the Conditions under which the Presence of a Natural Person in the UAE will not Create a Permanent Establishment for a Non-Resident Person

The UAE Minister of Finance by Ministerial Decision No.83/2023 dated 10 April 2023 has set out the conditions under which the presence of a natural person in the UAE would not create a Permanent Establishment for a Non-Resident Person.


For the sake of context, Article 12 of CT provides that a Non-Resident Person is subject to Corporate Tax on Taxable Income in certain circumstances, which include, the Taxable Income attributable to the Permanent Establishment of the Non-Resident Person in the UAE.


While Article 14 (1) and (2) of the CT deals with circumstances under which a Non-Resident Person is considered to have a Permanent Establishment in the UAE. Article 14 (3) of the CT sets out the circumstances a fixed or permanent place of a Non-Resident Person in the UAE will not be considered as a Permanent Establishment.


Article 14 (7)(a) of the CT also provides that for the purpose of Article 14(3), the Minister may prescribe the conditions under which the mere presence of a natural person in the UAE does not create a Permanent Establishment for a Non-Resident Person where the presence of such natural person in the UAE is due to a ‘temporary and exceptional situation’. The conditions are set out in Ministerial Decision No. 83 of 2023 which states that, a ‘temporary and exceptional situation’ is where all of the following conditions are met:


a) The presence of the natural person in the UAE is due to exceptional circumstances of a public or private nature;


b) The exceptional circumstances cannot reasonably be predicted by the natural person of the Non-Resident Person;


c) The natural person did not express any intention to remain in the UAE when the exceptional circumstances end;


d) The Non-Resident Person did not have a Permanent Establishment in the UAE before the occurrence of the exceptional circumstances; and


e) The Non- Resident Person did not consider that the natural person is creating a Permanent Establishment or deriving income in the UAE as per the tax legislation applicable in other jurisdictions.


The Ministerial Decision states that ‘an exceptional circumstance’ is a situation or an event beyond the natural person’s control, which occurred while such person was already in the UAE, which he could not reasonably predict or prevent and which prevented him from leaving the UAE as originally planned.


The Ministerial Decision continues to provide further guidance on what ‘exceptional circumstances of a public nature’ and ‘exceptional circumstances of a private nature’ are:


Exceptional circumstances of public nature include: (a) adoption of public health measures by the competent authorities in the UAE or in the jurisdiction of the original workplace or by the World Health Organization; (b) imposition of travel restrictions by the competent authorities in the UAE or in the jurisdiction of the original workplace; (c) imposition of legal sanctions on the natural person preventing them from leaving the UAE; (d) acts of war or occurrence of terrorist attacks; (e) occurrence of natural disasters or force majeure beyond reasonable control.


Exceptional circumstances of a private nature include 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. ■