21-Aug-2025 Analysis of applicability of Permanent Establishment criteria of an UAE entity selling goods or providing services in KSA
#ksacorporatetax #uaecorporatetax #digitaltaxcompliance #zatca #ksauae_dtaaA UAE entity may be deemed to have a PE in KSA if it has a fixed place of business, undertakes long projects, or uses a dependent agent there. Purely auxiliary activities or services performed fully from the UAE usually don’t create a PE. The KSA–UAE DTAA further protects entities—especially free zone companies—by limiting PE exposure where no physical presence or dependent agent exists in KSA.
The landscape of sales of goods and online service delivery from the UAE to Saudi Arabia is undergoing significant transformation and developments in KSA's corporate taxation framework, UAE Corporate Tax along with exemption to UAE free zone entities, the UAE-KSA Double Taxation Avoidance Agreement (DTAA), criteria for Permanent establishment, withholding tax and enhanced digital compliance requirements through ZATCA.
This analysis examines the implications for UAE-based entities selling goods or providing services to Saudi clients and the applicable criteria for identifying whether the UAE entity could said to be having a Permanent Establishment (PE) in KSA and the corresponding applicable regulations.
The criteria for a Permanent Establishment (PE) under Saudi Arabian (KSA) law are primarily defined in the KSA Income Tax Law and may be further influenced by the Double Taxation Avoidance Agreement (DTAA) between KSA and the United Arab Emirates (UAE).
Permanent Establishment under KSA Income Tax Law
According to the KSA Income Tax Law, a Permanent Establishment (PE) of a nonresident in the Kingdom generally consists of the permanent place of the nonresident’s activity through which it carries out business, in full or in part, including business carried out through its agent.
Specific examples that are considered a permanent establishment include:
- 1. Construction sites, assembly facilities, and related supervisory activities.
- 2. Installations, sites used for surveying natural resources, drilling equipment, ships used for surveying for natural resources, as well as connected supervisory activities.
- 3. A fixed base where a nonresident natural person carries out business.
- 4. A branch of a nonresident company licensed to carry out business in the Kingdom.
However, a place is not considered a permanent establishment if it is used only for the following purposes:
Additionally, a nonresident partner in a resident partnership is considered an owner of a permanent establishment in the Kingdom, in the form of an interest in a partnership.
Permanent Establishment under KSA-UAE Double Taxation Avoidance Agreement (DTAA)
The DTAA between KSA and UAE is in force. In cases where the conditions of an international agreement to which KSA is a party are inconsistent with the provisions of the KSA Income Tax Law, the conditions of the treaty or international agreement shall prevail, with the exception of KSA's anti-tax avoidance procedures.
Under the KSA-UAE DTAA, a "permanent establishment" generally means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
Specific examples included as a permanent establishment are:
The DTAA also specifically includes the following as a permanent establishment:
- 1. A building site, construction or installation project, or supervisory activities related thereto, but only if such site, project, or activities continue for more than six months.
- 2. The provision of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for that purpose, but only if activities of that nature (for the same project or a connected project) continue for a period or periods aggregating more than 183 days within any twelve-month period commencing or ending in the fiscal year concerned.
- Activities that do NOT constitute a permanent establishment under the DTAA are similar to KSA domestic law, focusing on activities of a preparatory or auxiliary character, such as:
However, the DTAA clarifies that these preparatory/auxiliary exclusions do not apply if the same enterprise or a related enterprise carries on business activities at the same place or another place in the same Contracting State, and that place or other place constitutes a PE, or the overall activity forms a cohesive business operation and is not of a preparatory or auxiliary nature.
Regarding agents, a person (other than an independent agent) acting on behalf of a nonresident enterprise may constitute a PE if they habitually exercise authority to conclude contracts or habitually play a principal role in negotiating contracts on behalf of the enterprise. An enterprise is generally not deemed to have a PE if it carries on business through a broker, general commission agent, or any other agent of an independent status, provided such persons are acting in the ordinary course of their business. The DTAA also explicitly states that the mere fact that a company resident in one Contracting State controls or is controlled by a company resident in the other Contracting State does not, by itself, make either company a PE of the other.
It is important to note that entities situated in a Free Zone Person in the UAE, may seek to leverage the DTAA to get exemption from KSA PE classification if their activities in KSA do not meet the DTAA's PE criteria, particularly by ensuring services are performed outside KSA and there is no physical presence or dependent agent establishing a PE.