How to Split a Domestic PE

A mainland operation can change the split

A Domestic Permanent Establishment is a place of business or other taxable presence of a QFZP outside the Free Zone in the UAE. The FTA's Free Zone Persons guide identifies two practical routes: a fixed or permanent place through which the business is conducted, or a person who habitually exercises authority to conduct business for the QFZP outside the Free Zone. Preparatory or auxiliary activity is treated differently, so the actual work matters.

If you are deciding whether a mainland office, branch or sales representative belongs in the return analysis, start with the lease, staff role, contracts and operating records. We would treat a staffed mainland office as a live PE question before filing, because the location can move its attributable income into the 9% component and change the expense bridge. A licence address alone cannot answer the question.

• Identify every fixed place used by the business outside the Free Zone.
• Read the employee or agent authority in the contract.
• Separate preparatory support from revenue-producing work.
• Record the PE conclusion before allocating profit.

The place and the person both matter

A place can be an office, workshop, factory or other premises at the QFZP's disposal where part of the business is conducted. A person can create a separate issue when that person habitually concludes contracts or negotiates contracts that the QFZP accepts without material changes. The FTA guide also records an exception for activity that is solely preparatory or auxiliary. Keep the test tied to what happened, not what the business calls the location.

The evidence should let a reviewer reconstruct the function, assets and risks on each side. Use the lease and access records for the place, role descriptions and correspondence for the person, and contracts and invoices for the activity. If the same customer, staff member or system serves both components, the cost schedule must explain the benefit received and the allocation key used.

A trade licence or office label does not settle the analysis. The FTA guide does not define every possible mainland arrangement by name, so the boundary remains factual: what place was available, what people did there and which contracts or revenue depended on that work. State the conclusion, identify the evidence that supports it and list the fact that would change the treatment. The facts should be revisited when the office, authority or operating model changes. Revisit it after a restructuring or any material change in operating facts.

• Check who controls and uses the premises.
• Check whether contracts are concluded or materially negotiated there.
• Document the activity performed by each person or team.
• Keep the evidence beside the PE conclusion.

Treat the PE as a separate business for the schedule

Cabinet Decision No. 100 of 2023 says income attributable to a Domestic Permanent Establishment is Taxable Income and is calculated as if the establishment were a separate and independent Person related to the QFZP. That requires more than moving a mainland invoice into another column. Identify the functions performed, assets used and risks assumed, then connect the result to the customer contract, ledger entry and financial statement.

Direct expenses should follow the activity they support. Central HR, rent, software and management costs need an allocation that reflects the benefit received and can be explained under the arm's-length principle. The FTA guide gives examples of headcount, IT support tickets and other keys that may fit particular facts. There is no universal percentage that makes every shared cost correct.

• Map each contract to the place and team performing the work.
• Assign direct expenses before considering shared expenses.
• Write the reason beside every material allocation key.
• Reconcile the split to the full financial statements.

The worked split is the control total

The FTA guide's Company J example starts with AED 3,000,000 of Revenue. AED 2,000,000 belongs to the Domestic Permanent Establishment and AED 1,000,000 to the Free Zone parent. Direct expenses total AED 2,000,000, and allocated expenses total AED 300,000, leaving AED 700,000 profit. The split is AED 450,000 for the Domestic Permanent Establishment and AED 250,000 for the Free Zone parent.

The tax arithmetic is visible: AED 450,000 multiplied by 9% equals AED 40,500 for the Domestic Permanent Establishment, while the example applies 0% to the AED 250,000 Qualifying Income component. The FTA guide confirms the method but does not decide whether your premises or representative creates a PE. That boundary is real. The lease, authority wording and operating facts must carry your conclusion.

• Show total Revenue before the PE allocation.
• Show direct and allocated expenses separately.
• Calculate the attributable profit for each component.
• Carry the same control totals into the return.

Resolve the mainland fact before filing

Put the PE schedule in front of management before the return is approved. It should contain the premises list, branch or agent agreements, customer and sales records, staff roles, direct-cost ledger, shared-cost basis and financial-statement reconciliation. If a person outside the Free Zone negotiates or concludes contracts, preserve the correspondence that shows what authority was actually exercised. The file should answer a question a reviewer can ask without calling the original preparer.

Our recommendation is to resolve the PE question before polishing the tax computation, because a correct percentage applied to the wrong income component still produces the wrong return. Exiloz can prepare the revenue bridge, cost allocation and reconciliation for management review. An independent auditor or other qualified professional must handle any statutory audit or assurance work required for the wider file.

• List all mainland premises and representatives.
• Preserve contracts and evidence of authority.
• Obtain management approval of the PE treatment.
• Keep assurance work with an independent auditor.