Remote Work and Permanent Establishment: UAE Tax Considerations for International Companies
The rise of remote and hybrid work has done more than reshape how businesses operate; it has introduced new complexity into the question of where they are taxable. Historically, corporate taxation depended on physical presence: an office, a warehouse, a registered branch. Today, that question increasingly turns on where people are located and what they do there.
The OECD's November 2025 update to its Model Tax Convention Commentary directly addressed how these traditional tests apply in a world where employees routinely work across borders. Additionally, the concept of a Service PE, drawn from the UN Model Tax Convention and adopted by a growing number of jurisdictions, takes a modern approach. A Service PE does not require any physical presence. If employees are based in a country and providing services there for a sufficient duration, a taxable presence can be established based on activity alone.
The UAE has built itself as a global hub for talent, driven by zero personal income tax, strong infrastructure, and a pro-business environment. As a result, it is increasingly common for employees of multinational groups to be based in the UAE.
When the UAE introduced its Federal Corporate Tax framework in June 2023, the framework was designed to position the UAE as a jurisdiction where global talent could be based without creating undue tax exposure for the businesses they serve. A foreign enterprise whose employees reside and work from the UAE, does not find itself drawn into UAE taxability on that basis alone. For multinational groups, this provides a degree of comfort.
However, the comfort that UAE domestic law offers is only one layer of the analysis and treating it as the full picture is a risk that internationally operating businesses cannot afford to take.
Interplay with Tax Treaties.
The UAE maintains one of the most extensive double-taxation treaty networks in the world, spanning more than 100 bilateral agreements. A significant number of those treaties are based on, or influenced by, the UN Model Tax Convention, and many of them contain Service PE provisions with their own thresholds, definitions, and triggering conditions.
Where a treaty between the UAE and the jurisdiction of the foreign employer incorporates a Service PE clause, the presence of employees in the UAE providing services for a specified duration could, in principle, establish a taxable presence, irrespective of what UAE domestic law provides. The treaty provisions govern the allocation of taxing rights between the two contracting states, and where those provisions are met, the question of taxability does not simply disappear.
The interaction between domestic law and applicable treaty provisions, therefore, becomes the key determinant in the analysis. Two businesses with seemingly identical workforce arrangements in the UAE may face entirely different tax outcomes depending on which treaty applies, how its Service PE clause is worded, and what thresholds are embedded within it.
Key Risk Areas to Watch
For international companies with employees based in the UAE, the following factors warrant careful consideration:
- Duration of presence
Many Service PE clauses are triggered once employees exceed a specified number of days within 12 months.
- Nature of activities
The risk is higher where employees are engaged in core revenue-generating functions, rather than purely auxiliary or support activities.
- Contractual authority vs. practical influence
Even where employees do not formally conclude contracts, their role in negotiation or commercial decision-making may attract scrutiny.
- Employer vs. economic beneficiary
Where employees are formally employed by one entity but economically serve another, the allocation of risk and value becomes important.
How can we help?
We work with international businesses at every stage — from companies making their first UAE hire to established groups looking to formalise their position. Our support covers:
PE risk assessment: A clear analysis of your UAE arrangements against both domestic law and your applicable tax treaty, with a view on where you stand and what, if anything, needs to change.
Contract and operating model review: Employment agreements, authority structures, and operational arrangements were reviewed to ensure they reflect the intended tax position.
UAE Corporate Tax registration and compliance: End-to-end support for companies with a UAE taxable presence: FTA registration, annual return filing, and ongoing compliance management.
Transfer pricing compliance: Where a UAE PE has dealings with its head office or group entities, ensuring those transactions are priced on arm’s length terms and properly documented.
Double tax treaty analysis: Treaty-specific review to determine the applicable PE thresholds and identify available relief to minimise cross-border tax exposure.
CA Purvi Mehta | Associate Director - Direct Tax
M: +97152 280 0480
E: Purvi.Mehta@CLAemirates.com
