Cabinet Decision No. 35 of 2025: Tax Nexus for Non-Resident Persons in the United Arab Emirates

Cabinet Decision No. 35 of 2025: Tax Nexus for Non-Resident Persons in the United Arab Emirates

On March 27, 2025, the Cabinet of the United Arab Emirates (UAE) issued Decision No. 35 of 2025. This regulation redefines the conditions under which a non-resident foreign legal entity is deemed to have a tax nexus in the UAE, in accordance with Federal Decree-Law No. 47 of 2022 on Corporate Tax.

This fiscal change directly impacts international taxation, particularly for foreign companies with operations or income linked to real estate in the Emirates.

When a Tax Nexus is Established in the UAE

According to Article 2 of Decision 35/2025, a non-resident entity will be subject to corporate tax in the United Arab Emirates if any of the following conditions are met:

1. Income from Real Estate in the UAE: This includes the sale, assignment, leasing (including subleasing), use, or any other form of exploitation of real estate located within Emirati territory.
2. Application of Special Tax Rules for Investment Funds: When income is adjusted as established in Decision No. 34 of 2025 for investment funds.
3. Participation in Real Estate Investment Trusts (REITs):

• If they distribute at least 80% of their income within 9 months of the fiscal year-end.
• Should this threshold not be met, the tax nexus is created from the date of participation in the fund.

Artificial Transfer of Real Estate Rights

Article 3 of Decision 35/2025 introduces an important rule: if a non-resident person artificially transfers or disposes of real estate rights without a genuine economic justification or valid commercial reason, the transaction will be considered an artificial strategy to obtain undue tax advantages. With this provision, UAE tax authorities aim to combat tax evasion and aggressive tax planning practices.

Requirements for Non-Resident Legal Entities

The new regulation imposes specific obligations on those who establish a tax nexus in the United Arab Emirates:

• Mandatory registration with the UAE's Federal Tax Authority (FTA), in accordance with Article 51 of the Decree-Law.
• Decision No. 56 of 2023 is repealed, applicable only until the 2024 tax periods.
• The effective date of this regulation is for tax periods beginning on or after January 1, 2025.

Consequences and Scope of the Regulation

Cabinet Decision No. 35 of 2025 has significant implications for non-resident foreign companies:

• It implies increased scrutiny of corporate structures and vehicles that generate real estate income in the UAE, even from abroad.
• It strengthens international tax transparency and the principle of tax equity.
• It aims to ensure that every foreign company with significant economic activity in the United Arab Emirates contributes fairly to the country's tax system.

Final Thoughts

The issuance of this decision signals the United Arab Emirates' commitment to international tax harmonization, tax transparency, and attracting investment under a reliable regulatory framework. For foreign companies, this change means a need to review their tax and real estate investment structures in the UAE, ensuring regulatory compliance and proper tax planning in an increasingly regulated environment.