Article 14 defines the term “Permanent Establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. It includes especially a place of management or a branch or an office, etc.

An enterprise’s “Permanent establishment” (PE) shall be deemed not to include: 

• Use of facilities or maintenance of a stock of goods solely for the purpose of storage, display or delivery of goods or for the purpose of processing by another enterprise. 
• Maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information; or solely for the purpose of carrying on any other activity of a preparatory or auxiliary character.
• The activities being conducted by the PE are not part of the core income-generating activities of the enterprise or its Related Parties. 
• Where the enterprise does not derive State Sourced Income.
• Where such PE is a consequence of a temporary and exceptional situation.
• A broker, general commission agent or an agent of an independent status, merely because it carries on business in the foreign country; 

 Agent – Independent status vs Dependent status:

• Dependent agent: When the activities of an agent in the UAE are devoted wholly or almost wholly on behalf of non-resident company, unless the activities of such person are limited to the purchase of goods for the enterprise –

• • • Habitually exercise the authority to conclude contracts
    • Negotiates or concludes contracts without material intervention 

• Independent Agent: Acting in the ordinary course of their business. Does not work exclusively for the foreign company and are truly legally and economically independent.

Determining profits of a Permanent Establishment:  Article 12, Cl.3 states the profits of a company shall be taxable only in the country where a permanent establishment is situated. 

• The profits which might be expected to make if –
  • Both Parent and branch company were a distinct and separate enterprise engaged in the same or similar activities; and 

• Dealing wholly independently with the parent company of which it is a permanent establishment.

Expenses are allowed to be considered as an expense which are incurred for the business purposes of the permanent establishment, including executive and general administrative expenses.