New Tax Residency Rules in UAE
New Tax Residency Rules in UAE
According to experts in the UAE, a ministerial decision has been issued by the government that will make life easier for expats residing in the country. The decision, which the Ministry of Finance issued earlier this month, pertains to determining tax residency and is in the best interest of expats. The decision is based on Cabinet Decision No. 85 of 2022. It lays out specific criteria, including the number of days an individual must be physically present in the UAE, to be considered a tax resident. This law was initially issued in September 2022.
According to Mostafa Hegab, Legal Counsel at Mansoor Lootah Advocates and Legal Consultants, the new decision's primary goal is to prevent double taxation. The decision outlines specific criteria that a natural person or legal entity must meet to be identified as a tax resident in the UAE. As a result, a tax residency certificate will be issued, which can be shared with the individual's birthplace to avoid dual taxation. Cabinet decision No. 85 was enacted on March 1, 2023, to define the requirements and regulations for recognizing an individual or entity as a tax resident in the country.
According to Century Financial's Chief Market Analyst, Arun Leslie John, the alignment of the definition of domestic Tax Resident with internationally recognized standards has been accomplished. He further added that the introduction of this new criterion would make it easier for individuals and entities to have complete clarity about their tax residency status within the country. This development is particularly significant since the UAE is home to individuals from all over the world.
So, what are the implications of this for UAE residents? Let's examine the experts' opinions below.
Who is a natural or juridical tax resident?
Libbie Burtinshaw, the Head of Operations at PRO Partner Group, explains that the Domestic Tax Residency regulation outlines the criteria for determining UAE tax residency status for both natural persons and juridical persons.
To be considered a natural person, an individual must have a permanent place of residence, be employed, or have a business in the UAE. Additionally, a natural person includes individuals who meet any of the following conditions:
- have spent 183 days or more in the UAE over a consecutive 12-month period
- primarily reside in the UAE
- are based out of the UAE for financial and personal interest
- are UAE nationals, valid Permanent Resident Permit holders, or GCC members of state nationalities who must be physically present for 90 days or more over a 12-month period.
On the other hand, a juridical person refers to a business or entity that is legally distinct from its owners. Tax residency applies to businesses or entities that are established or recognized in the UAE.
How will this impact UAE residents?
Arun elucidates that the UAE has forged double taxation treaties and bilateral agreements with 137 countries, which are contingent on the UAE's domestic laws and instrumental in determining a person's tax residency status. Consequently, eligible UAE residents can petition the Federal Tax Authority for a tax residency certificate, which is mandatory for seeking tax relief or availing benefits in a foreign jurisdiction under the relevant tax treaty.
Mostafa provides further clarification by stating that Articles 3 and 4 of Cabinet Decision No. 85 of 2022 have precisely delineated the criteria for both legal and natural persons. Fulfilling the specified requirements enables UAE residents to easily acquire a Tax Residency Certificate (TRC) that serves as evidence of tax payment.
How will this impact investment decision in the country?
Libbie clarifies that being a tax resident of the UAE does not entail personal income tax obligations. However, it can assist individuals who meet the eligibility requirements in determining their tax residency status.
