Recent developments in the UAE’s tax framework have clarified the process of determining individual tax residency. Ministerial Decision No. 27 of 2023, issued on March 1, 2023, provides crucial insights into the definitions used to assess an individual’s tax residency status within the UAE. This decision aligns the domestic tax residency definition with internationally recognised standards, offering greater clarity for individuals and legal entities regarding their UAE tax residency position.
This blog explores the implications of double tax agreements, analyses the criteria to obtain tax residency in the UAE, discusses the benefits of tax residency, and explains how businesses and individuals can obtain tax residency in the UAE. Understanding these regulations empowers individuals to determine their UAE tax residency status with greater ease and potentially unlock significant financial advantages.
What is tax residency in the UAE?
To benefit from a Double Taxation Agreement (DTA), it is necessary for the taxpayer to provide a Tax Residency Certificate (TRC) to prove that the person is resident in another country and is subject to tax in that country. The TRC is a certificate issued to take advantage of agreements of double taxation avoidance on income to which the UAE is a signatory.
Government entities, companies, and individuals are eligible for tax residency in the UAE.
What is a double tax agreement and why is it relevant?
Double taxation occurs when a taxpayer is forced to pay similar taxes on the same income in two different countries. This creates a significant burden and discourages cross-border investment and trade.
To address this issue, countries enter into Double Tax Agreements (DTAs). These treaties aim to:
1. Reduce or eliminate taxes on income earned in one country by residents of the other.
2. Protect investments from non-commercial risks and ensure the free transfer of profits in convertible currency.
The UAE has actively established 193 DTAs and Bilateral Investment Treaties (BITs) with its trade partners. This extensive network offers significant advantages for:
1. Public and private companies by streamlining cross-border operations and reducing tax liabilities.
2. Investment firms by encouraging foreign investment and facilitating the repatriation of profits.
3. Residents by providing tax relief on income earned abroad.
4. Overall economic growth by promoting international trade and investment flows.
What are the criteria to obtain tax residency in the UAE?
Natural Persons:
A natural person shall be considered a tax resident in the UAE if any of the following conditions are met:
1. If his usual or primary place of residence and the centre of his financial and personal interests are in the UAE.
2. If he has been physically present in the UAE for a period of one hundred and eighty-three (183) days or more, within the relevant twelve (12) consecutive months.
3. If he has been physically present in the UAE for a period of (90) ninety days or more, within the relevant (12) twelve consecutive months, and is a UAE national, holds a valid residence permit in the UAE or holds the nationality of any member state of the Gulf Cooperation Council, and meets any of the following:
4. He has a permanent place of residence in the UAE.
5. He carries on employment or business in the UAE.
Legal Persons:
A legal person shall be considered a tax resident in the UAE if any of the following conditions are met:
1. The legal person is incorporated, formed, or recognised in accordance with the legislation in force in the UAE. In other words, branches of a foreign judicial person and offshore companies are not eligible to apply.
2. The legal person is considered a tax resident in accordance with the tax law in force in the UAE.
Other considerations include:
3. To be eligible to apply for a TRC, the legal person must have been established for a period of at least one year.
4. Financial accounts must be audited or prepared by an accredited audit firm, and the report must be certified and stamped by the audit firm.
5. The audited financial report must correspond to the period for which the certificate is requested. If the certificate is requested for the present year, the audit report must cover the past year.
How can businesses and individuals obtain tax residency certificates in the UAE?
An eligible person may make an application to the authority for the purpose of issuing a Tax Residency Certificate (TRC) to that person. The application should be in accordance with the form and manner specified by the authority. If the authority is satisfied that the applicant meets the requirements and that the application was submitted in accordance with specification, the authority may approve the application and issue the TRC.
If any international agreement sets out certain conditions for determining tax residency, the provisions of that agreement on determining tax residency shall apply for the purposes of this international agreement.
The documents required to apply for TRC include the following:
1. Copies of passport and Emirates ID
2. Entry and exit report from the Federal Authority of Identity and Citizenship or a local component government entity
3. Bank statement
If the application is submitted in less than 183 days but more than 90 days, additional documents required would include:
1. Proof of financial and personal interests
2. Proof of permanent place of residence (e.g., tenancy contract and utility bill)
The applicant must note that the TRC is valid for one year, i.e., from the beginning of the financial year selected by the applicant.
How can we help?
In conclusion, obtaining tax residency in the UAE offers a compelling proposition for individuals seeking a tax-efficient environment. With the recent clarifications provided by Ministerial Decision No. 27 of 2023, determining your tax residency status has become more streamlined. However, navigating the intricacies of tax regulations can still be challenging. Gatestone Group stands ready to assist you in understanding your tax residency position and exploring the full spectrum of benefits it offers.
Right from the review of the eligibility to reviewing the documents to ensure their completeness, our team of tax specialists provides complete support to ensure your application goes through the proper procedures. We also apply to authorities and provide support in responding to any queries to help in receiving the certificate. Contact Gatestone Group today via email at [email protected] or call +971 4 450 1023 for a free consultation and to unlock the potential of tax residency in the UAE.
Author: Mohamed Noordeen – Head of Finance & Tax
