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Embracing The Future of Taxation In The UAE: Understanding Tax Residence Criteria For Individuals And Legal Entities

In our ongoing series of newsletters, Statura is committed to providing insightful updates and guidance on the evolving fiscal landscape of the United Arab Emirates (UAE). Following our initial discussion on the new Corporate Tax Law, we now turn our attention to a crucial aspect of taxation that significantly impacts both individuals and legal entities: the criteria for tax residence in the UAE.

Our second newsletter delves into the details of the Cabinet Decision No. 85 of 2022, issued by the Federal Tax Authority on 2 September 2022. This decision, effective from 1 March 2023, outlines the new criteria for determining tax residence status in the UAE. Our goal is to demystify these criteria, helping you understand how they might affect your personal and corporate tax obligations. Whether you are an established resident, a business owner, or considering a move to the UAE, this newsletter is designed to keep you informed and prepared for these important changes. 


THE NEW TAX RESIDENCE CONCEPT IN THE UAE

On 2 September 2022, the Federal Tax Authority (FTA) issued the Cabinet Decision No. 85 of 2022.

This decision highlights the new criteria for tax residence classification for both legal entities and individuals, effective from 1 March 2023. These criteria are set out and explained below.

Legal Entities

A legal entity can be deemed a tax resident in the UAE if:

  • It is incorporated, formed, or recognised in the UAE (excluding UAE branches of foreign entities).
  • If it is effectively managed and controlled in the UAE.


Individuals

Individuals may be considered tax resident in the UAE if they meet any one of the following conditions:

  • Their main residence and core of financial and personal interests are within the UAE, regardless of the number of days spent in the UAE.
  • They have been physically present in the UAE for at least 183 days (within a 12-month consecutive period).
  • They have a permanent place of residence and/or employment or business in the UAE and are physically present in the UAE for a minimum of 90 days during a year. This only applies to UAE and GCC citizens or those with a valid UAE residence visa.
  • They meet the conditions and criteria determined by a decision from the Minister.

If a specific Tax Treaty sets out specific conditions for determining the tax residence the provisions of said Treaty shall apply in priority over the domestic tax provision.

Tax Residence Certificate

Eligible individuals can request a Tax Residence Certificate, which can be used to apply the benefits (e.g. reduced withholding tax rates) as provided for by the Tax Treaties ratified by the UAE.

In order to apply for the Tax Residence Certificate, taxpayers must file an online application via the FTA Portal and provide all relevant supporting documents. These documents vary based on the applicant's status and can include (the list below are not echaustive):

For legal entities

  • UAE trade license copy.
  • Passport copies, Emirates ID, and residence permits of the Directors/Shareholders/Partners.
  • Audited Financial Statements.
  • Last 6 months UAE bank statement verified/certified by the relevant Bank or financial institution.
  • Certified copy of the lease agreement for the business premises.
  • Tax forms (if any) from the country in which the certificate is to be submitted.


For individuals

  • Certification of the source of income or salary slip.
  • Copies of passport, Emirated ID, and UAE Visa.
  • Last 6 months UAE bank statement verified/certified by the relevant Bank or financial institution.
  • Certified copy of a residential lease or tenancy contract.
  • Report from the General Directorate of Residency and Foreigners Affairs (GDRFA) or from the Identity and Citizenship Authority (ICA) stating the duration of stay in the UAE.
  • Tax forms (if any) from the country in which the certificate is to be submitted.

 

Upon the FTA's approval, the applicant will receive a Tax Residence Certificate, valid for a year. The UAE tax authorities indicate that pre-approval takes 4-5 working days, followed by another 5-7 working days to obtain the Tax Residence Certificate.

Statura is here to assist you in assessing your tax residence status in the UAE and verify the prerequisites to obtain a Tax Residence Certificate and to guide you through the entire application process.