All You Need To Know About Tax Residency in the United Arab Emirates

On September 2nd, 2022, the UAE government issued the Cabinet Decision No. 85 of 2022, determining tax residency in the country. It lays down rules which determine as to when a person, whether natural or legal, may be considered as a tax resident in the UAE. The rules have been framed in consonance with internationally recognized standards and are set to come in force from March 1, 2023.

Juristic Person: A juristic person is a non-human legal entity which is capable of suing and being sued. Examples of juristic persons in the UAE include Limited Liability Companies, public joint stock companies, foundations etc.

As per Article 3 of the Cabinet Decision, a legal or juristic person is to be considered a tax resident if:

1. It is established, formed or recognized according to the legislation in force in the country (does not apply to a branch registered by a foreign juristic person), or
2. It is a tax resident as under the prevailing tax law in the country

Natural Person: Also, a natural person will be considered a tax resident under Article 4 if:

1. They have their usual or primary place of residence and the center of financial and personal interests in the UAE, or
2. They were physically present in the UAE for 183 days or more during a consecutive 12-month period, or
3. They were physically present in the UAE for 90 days or more during a consecutive 12-month period, and they are either a UAE national, or have a valid residence permit in the UAE, or are a GCC national, as well as
4. Having permanent residence in the country
5. Carrying out employment or business in the country

The new Corporate Tax regime: Juristic persons falling under the ambit of UAE Tax Residency may be liable to the new Corporate Tax to be introduced from June 1, 2023 onwards, i.e., under Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses. A foreign juristic person will also be liable to pay tax but under the Corporate Tax regime only.

International Agreements: Under a special case where an international agreement, i.e. a tax treaty determines tax residency conditions for a tax resident in the UAE, the provisions of such treaty will continue to apply, following Article 6 of the Cabinet Decision. The Ministry of Finance will be responsible for determining the form and method of residency certificates to be issued for such agreements.

Authority: Persons who will be liable to tax residency under the abovementioned definitions are required to apply to the Federal tax Authority (FTA) to obtain a Tax Domicile Certificate (TDC) following Article 5 of the Decision, if they wish to enjoy the benefits and reliefs available therefore.

The FTA is the authority responsible for issuing further clarifications regarding Cabinet Decision No. 85 of 2022. It will also formulate rules so as to collect the relevant information required for the application for the provisions of the Decision. Government entities in the UAE are required to cooperate with the FTA for a smooth implementation of the provisions of the Decision.

Conclusion: Earlier, the UAE did not have a tax residency law in place; it was only based on the definitions available in international treaties entered into by the UAE on the matter. A domestic tax residency criterion will be able to provide further clarity and have explicit rules to refer for those covered by it.