State Sourced Income

As per the source rule of the taxation, a country has the right to tax the income which is derived from its jurisdiction. The decree law has defined the various instances when an income shall be treated as State Source income & shall be taxed accordingly. Any of the following income will be treated as state source income for the purpose of the law.

The Decree law may prescribe few limitations or conditions to various type of state source income, however these will not be applied to followings income

• From sell of goods in the state.

Eg. :- If any Turkey based company sells its goods in exhibition or through online platform whether or not incorporated in state, such income will be considered as state source income.

• Services which are utilized, rendered or benefitted in the state.

Eg. :-

Outsourcing work done by an Indian company for a UAE based entity.

Classes by a trainer through online platform when students are located in UAE.

Team of architect who comes to UAE for renovation of property in UAE.

If a part of the contract is performed or benefitted then income limited to that performance will be considered as State sourced income.

• Income generated from moveable or immovable property viz. rental of land or building, Lease of yacht, cruise etc.
• Income from sell of a UAE resident persons’ shares or capital.

Eg. :- A Belgium entity sells of shares of UAE company to a Russian entity. The profit derived from this trade will be considered as state source income.

• Income generated from sale of right or grant which enable a person to do business activities in the state. It includes UAE based intangible property sell as well.

Eg. :- An Indian media company sells its telecasting rights for UAE region to singapore company such income derived from selling of these rights is state sourced income.

• Interest income when either underlying security is in the State or loan is given to resident person or government entity. Hence if interest is earned from the UAE, it is a state source income. Further if a loan agreement is made between 2 entities where both of the entities are located outside the UAE however if the asset which is kept as security is in the State, then too such interest income will be treated as state source income.

Eg. :- If a UK based company gives loan to Singapore based company where asset under mortgage is located in Dubai then the interest earned by the UK company will be State sourced income.

• Insurance or reinsurance premium when either asset is in the state or insurance provided to resident person or insurance activity is conducted in the state. Hence any insurance activity which is conducted in the state will generate State source income. Moreover, an outside UAE entity who make a contract of insurance or a reinsurance to an insurance provider where underlying asset is in the state or insured person is resident then too such premium income will be treated as State source income.

Eg. :- If a Swiss based insurance company signed a contract for insurance of a Cruise ship registered in UAE and then Further it reinsures itself with a US based insurance company then the premium earned by Swiss as well as by US company will be treated as State source income.