If your UK company operates through a UAE branch, 2027 could change how those foreign profits and losses are treated for UK Corporation Tax.

From accounting periods beginning on or after 1 January 2027, the foreign permanent establishment exemption becomes mandatory for most UK-resident companies.

That means qualifying UAE branch profits and losses will generally be outside the UK Corporation Tax calculation.

But businesses with existing UAE branch losses need to look more closely at the transitional rules.

So what exactly is changing, and what should you review before 2027?

What Is a UAE Branch of a UK Company?

A UAE branch is an extension of the UK company rather than a separate legal company.

That is different from creating a UAE subsidiary. A subsidiary is a separate legal entity, while a branch remains part of the UK company.

For UK tax purposes, the important question is whether the UAE operation constitutes a foreign permanent establishment (PE).

If it does, the new foreign PE rules may apply to the profits and losses attributable to that operation.

The UAE has its own Corporate Tax rules for foreign businesses operating through a UAE permanent establishment, so the UK and UAE positions need to be considered together. 

What Is Changing From 1 January 2027?

Under the current UK regime, a company can generally elect for profits attributable to qualifying foreign permanent establishments to be exempt from UK Corporation Tax. The election also has consequences for foreign PE losses. 

The 2026 legislation changes this position.

For most UK-resident companies, the foreign PE exemption will become mandatory for accounting periods beginning on or after 1 January 2027.

As a result, qualifying foreign PE profits and losses will generally be exempt from UK Corporation Tax under the new regime. 

For a UK company with a UAE branch, this means the treatment of the branch's UK tax position will change from the start of the relevant accounting period.

What Happens to UAE Branch Profits?

Suppose your UK company has a UAE branch generating £500,000 of attributable profit.

Under the new foreign PE exemption, that qualifying foreign PE profit will generally be outside the UK Corporation Tax calculation.

That does not mean the profit is automatically free from tax.

The UAE tax position still needs to be considered separately, including whether the UAE operation is subject to UAE Corporate Tax and whether any applicable relief or exemption applies.

The key point is that UK exemption and UAE taxation are separate questions.

What Happens to Existing UAE Branch Losses?

This is where businesses with established UAE operations need to pay particular attention.

Under the existing regime, foreign PE losses can, in certain circumstances, have reduced the UK company's taxable profits, with later rules potentially bringing amounts back into the UK tax calculation when the foreign PE becomes profitable.

The 2027 reform changes that system.

The legislation contains transitional rules for pre-transition foreign PE losses and other relevant amounts. These rules determine how amounts arising before the new exemption takes effect are treated and prevent businesses from simply carrying those amounts into the new regime as though nothing had changed.

So if your UAE branch has accumulated losses, the historical position needs to be reviewed before the new regime starts.

Why Does Your Accounting Period Matter?

The reform does not simply begin for every company on 1 January 2027.

The key test is the start of the accounting period.

For most companies, the new rules apply to accounting periods beginning on or after 1 January 2027. 

For example, a company whose accounting period begins on 1 January 2027 will enter the new regime from that date.

This makes the accounting period an important part of planning, particularly for businesses with existing branch losses.

The legislation also includes measures aimed at preventing companies from artificially delaying the new rules through changes to their accounting period.

Does This Mean You Should Replace Your UAE Branch?

Not necessarily.

The 2027 reform does not require a UK company to replace its UAE branch with a UAE subsidiary.

Whether a branch or subsidiary is appropriate depends on the wider commercial and tax structure.

For example, a UAE branch may already have employees, contracts, customers and established operations. In another case, the business may be considering whether a separate UAE company would provide a better long-term structure.

The 2027 rule change should therefore be treated as a reason to review the structure, not as an automatic instruction to restructure it.

What Should UK Companies With UAE Branches Review?

Before the new rules apply, look at five things.

1. Your structure

Is the UAE operation actually a foreign PE, and how is it currently treated?

2. Your accounting period

When does the accounting period beginning in or after 2027 start?

3. Your branch profits and losses

What amounts are attributable to the UAE PE, and are there historical losses?

4. Your UAE position

How is the UAE branch treated under UAE Corporate Tax?

5. Your future structure

Does the existing branch still make commercial sense as the UAE operation grows?

The answers can be very different for a new UAE branch compared with one that has been operating for several years.

A Simple Example

A UK company has operated a UAE branch for several years.

The branch initially made losses, which were relevant under the UK's existing foreign PE regime. The business is now becoming profitable as its UAE operation expands.

From the company's first accounting period beginning on or after 1 January 2027, the mandatory foreign PE exemption will apply if the relevant conditions are met.

The company therefore needs to understand both:

what happened to the branch before the transition, and

how its UAE profits and losses will be treated afterwards.

This is why looking only at the UAE branch's expected 2027 profit is not enough.

The historical position matters too.

The Important Date Is Getting Closer

The 2027 reform is a specific legislative change, not a general proposal to “change how overseas branches are taxed”.

For most UK-resident companies, the foreign PE exemption becomes mandatory for accounting periods beginning on or after 1 January 2027.

If your UK company already has a UAE branch, the useful question now is not simply:

“What tax will we pay in UAE?”

It is:

“What happens to our UAE branch for UK tax purposes once the new rules apply?”

That answer depends on your branch, your accounting period and your historical profits and losses.

How Evolve Tax Can Help

A UK company operating through a UAE branch needs to consider the UK and UAE treatment together, particularly where the branch has existing losses or is expected to become profitable.

Evolve Tax helps UK businesses review UAE branch structures, foreign permanent establishment rules and UK–UAE cross-border tax implications before the 2027 changes take effect.

If your UK company operates through a UAE branch, review the structure before your first accounting period beginning on or after 1 January 2027.

Speak to Evolve Tax about your UAE branch structure.

Frequently Asked Questions

When do the new UK foreign PE rules start?

For most companies, the mandatory foreign permanent establishment exemption applies to accounting periods beginning on or after 1 January 2027. 

Will UAE branch profits be taxed in the UK from 2027?

Qualifying foreign PE profits will generally fall within the UK foreign PE exemption, subject to the detailed rules. The UAE tax treatment remains a separate issue. 

What happens to existing UAE branch losses?

The 2026 legislation contains transitional rules governing pre-transition foreign PE losses and other relevant amounts. Existing losses should therefore be reviewed before the new regime applies.

Conclusion

The UK's foreign PE rules are changing from 2027.

For most UK-resident companies, the foreign PE exemption will become mandatory for accounting periods beginning on or after 1 January 2027.

If your UK company operates through a UAE branch, now is the time to review the branch's status, accounting period, historical losses and expected future profits.

The important question is not simply what changes in 2027.

It is what the change means for your existing UK–UAE structure.