For the first time, tax residency in the United Arab Emirates has being regulated at a legal level.
Thanks to “Cabinet Resolution No. 85” of 2022, the local government has brought clarity by enacting a new domestic regulation that aims to clarify of when a natural or legal person is to be considered a legitimate tax resident.
Until now, there was no national legal definition of tax residency, which was established from time to time either based on certain criteria set by the UAE Federal Tax Authority or by referring to international agreements (Double Taxation Agreements) and bilateral income tax treaties signed with foreign jurisdictions.
Referring to legal entities, these criteria included the availability of audited accounts and a minimum of one year of incorporation, while individual taxpayers were required to have an annual lease agreement and at least 180 days of residence in the UAE.
The new resolution, issued by Prime Minister Mohammed bin Rashid Al-Maktoum, will come into effect starting next March 1, 2023. From that time unambiguous rules will be established to determine when a person can be considered tax resident or not.
A corporate entity will be considered UAE-tax-resident if:
– they are “established, incorporated or recognized” in the UAE (the case of a subsidiary registered by a foreign legal entity is excluded),
– if they are considered residents under the applicable UAE tax law.
Regarding the second requirement, it should be noted that the corporate tax law (UEA CT-corporate tax) has not yet been officially enacted, and therefore has not yet clarified the necessary parameters. Currently, it is necessary to rely on a public consultation document, issued by the Ministry of Finance in April 2022, which specifies how “a company established outside the jurisdiction can still be treated as a tax resident of the UAE if it is actually managed and controlled in the UAE.”
Article 4 of the Resolution defines natural persons as tax residents in the UAE if one of the following conditions is met:
– UAE must be their habitual or principal place of residence, and the centre of their financial and personal interests too,
– must be physically present in the UAE for at least 183 days in a consecutive 12-month period.
– must be physically present in the UAE for a shorter period (only 90 days or more, again in a consecutive 12-month period), provided that they are UAE citizens, UAE residents or Gulf Cooperation Council (GCC) nationals who have a permanent residence or conduct business in the Emirates.
Where an international agreement, such as a tax treaty, specifies certain conditions for determining tax residency, the Resolution provides that the international agreement shall continue to apply. As a result, individuals assessing their tax residence in the Emirates for the purposes of applying a tax treaty with another country (with associated benefits in terms of tax relief) will have to refer to the specific criteria set out in the treaty itself.
Resolution No. 85 -2022 also establishes the new procedure through which a Tax Residence Certificate (TRCs) proving this status may be requested from the Federal Tax Authority (FTA).
Finally, specific rules are provided that will facilitate cooperation between the Tax Authority and all government agencies in the UAE to enable the collection of all relevant information, data and documents to implement the provisions set forth in the new rule.