Avoiding Double Taxation: The UAE's Legal Framework for Mitigating International Tax Liabilities

Introduction:

Double taxation arises when the same income is taxed in two different jurisdictions, potentially leading to excessive tax burdens for individuals and businesses. The UAE has developed a comprehensive legal framework to address this issue through international tax treaties and specific domestic regulations.

This article examines the key legislative instruments aimed at avoiding double taxation: Cabinet Decision No. 85/2022, Ministerial Decision No. 27/2023, and Ministerial Decision No. 247/2023. Understanding these regulations is essential for effectively managing international tax liabilities.

Cabinet Decision No. 85/2022: Establishing Tax Residency

Cabinet Decision No. 85/2022 is fundamental in determining tax residency in the UAE. It sets the criteria for who is considered a tax resident, which is crucial for accessing double taxation relief. Key points include:

• Juristic Persons: Deemed tax residents if established, formed, or recognized under UAE laws, or if acknowledged as tax residents by relevant UAE tax laws.
• Physical Persons: Considered tax residents if their primary residence and financial interests are in the UAE, or if they are present in the UAE for substantial periods (183 days or more) within a 12-month period. Those who spend 90 days or more within 12 months and meet specific conditions related to residence permits or nationality may also qualify.

This decision is essential for determining eligibility for double taxation treaty benefits, thereby reducing tax liabilities on international income.

Ministerial Decision No. 27/2023: Detailed Tax Residency Criteria

Ministerial Decision No. 27/2023 provides detailed guidelines for implementing Cabinet Decision No. 85/2022. It elaborates on:

• Primary Residence and Interests: How to assess if the UAE is the primary place of residence and centre of financial and personal interests, considering factors such as habitual presence, occupation, family ties, and management of assets.
• Calculating Presence: Methods for calculating days spent in the UAE, including non-consecutive days, crucial for establishing tax residency.
• Exceptional Circumstances: Consideration of days spent in the UAE due to unforeseen circumstances, ensuring temporary or emergency stays do not affect tax residency status unduly.

These guidelines are essential for accurately determining tax residency, facilitating compliance with double taxation agreements.

Ministerial Decision No. 247/2023: Issuance of Tax Residency Certificates

Ministerial Decision No. 247/2023 focuses on the issuance of Tax Residency Certificates (TRCs), which are necessary for claiming benefits under international tax treaties. The decision outlines:

• Application Process: Requirements and procedures for applying for a TRC, including necessary documentation and forms specified by the Federal Tax Authority.
• Verification: Criteria used by the Authority to confirm an applicant’s tax residency status, ensuring they meet the conditions stipulated in relevant international agreements.
• Certificate Issuance: The format and manner in which TRCs are issued, enabling individuals and businesses to present these certificates to foreign tax authorities to avoid double taxation.

TRCs are essential for leveraging international agreements to mitigate or eliminate double taxation, making international business operations and personal financial planning more efficient.

Conclusion:

The UAE's legal framework is designed to effectively address the issue of double taxation, providing clarity and certainty for individuals and businesses. By understanding and utilizing the provisions of Cabinet Decision No. 85/2022, Ministerial Decision No. 27/2023, and Ministerial Decision No. 247/2023, taxpayers can navigate their international tax obligations more efficiently.

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Dr. Hassan Elhais is a legal consultant in Dubai, specializing in the drafting of all statements of claim, memos and consultation on litigation of all manner.