Tax residency rules in UAE: All your questions answered

A UAE ministerial decision issued on the determination of tax residency will ease the lives of expats living in the UAE, and will be in their best interests, say experts in the country.

Earlier this month, the Ministry of Finance (MoF) issued Ministerial Decision No. 27 of 2023 on the implementation of certain provisions of Cabinet Decision No. 85 of 2022 regarding the determination of tax residency. The law was issued in September 2022, and stipulates the number of days that an individual must be physically present in the UAE to be considered a tax resident, among other things.

“The new decision simply aims to avoid double taxation,” said Mostafa Hegab, Legal Counsel at Mansoor Lootah Advocates and Legal Consultants. “The new cabinet decision has listed some requirements based on which any natural person or legal entity could be characterised as a tax resident in the UAE. Accordingly, a tax residency certificate will be issued, which can be provided back to the birthplace in order to avoid double taxation.'

Cabinet decision No.85 was issued in 2022, and came in to force on March 1, 2023, in to illustrate the requirements and conditions for identifying a person or legal entity as a tax resident in the state.

In doing so, they aligned the definition of domestic Tax Resident with internationally recognised standards, according to Arun Leslie John, Chief Market Analyst, Century Financial. “The newly introduced criterion will make it easier for individuals and entities to have absolute clarity about their tax residency position within the country,” he said. “This is important because the UAE is home to individuals from across the world.”

So, what does this mean for UAE residents? The experts break it down here:

Who is a natural or juridical tax resident?

According to Libbie Burtinshaw, Head of Operations at PRO Partner Group, the Domestic Tax Residency regulation defines a UAE tax resident as either a natural person or a juridical person.

A natural person is defined as an individual with a permanent place of residence in the UAE, or one that is employed, or has a business in, the UAE. It also refers to individuals who:

=UAE nationals, valid Permanent Resident Permit holders, or GCC member of state nationalities must be physically present for 90 days, or more, over a 12-month period.

A juridical person refers to a business or entity which is legally separated from its owners. Tax residency applies to businesses or entities established or recognised in the UAE.

How will this impact UAE residents?

Arun explains that the UAE has double taxation treaties and bilateral agreements with 137 countries. These reference the UAE’s domestic laws, and are crucial in determining an individual’s tax residency status. Therefore, UAE residents that are eligible can apply to the Federal Tax Authority requesting a tax residency certificate. This is a formal requirement if the individual wishes to further apply for tax relief, or claim benefits in a different jurisdiction under the applicable tax treaty.

Mostafa further clarifies that Articles 3 and 4 of the Cabinet decision No. 85 for 2022 have precisely demonstrated both juridical and natural persons. If the requirements mentioned are met, then a UAE resident can easily apply to obtain a tax residency certificate (TRC) to use it as proof of tax payment.

How will this impact investment decisions in the country?

Libbie explains that being a UAE Tax Resident does not make the individual subject to personal income tax, but will help individuals who meet the criteria understand their tax residency position.

The UAE's 9 per cent Corporate Tax (CT) will be active from June 2023. Marked against global corporate tax rates, the new CT policy is still very competitive. A 0 per cent CT rate for taxable income up to Dh375,000 should support small and medium businesses as well as startups.

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