The United Arab Emirates (UAE) government has announced new criteria which will determine when a natural or legal person is to be considered a tax resident.
The UAE has not had a domestic legal definition of tax residency. In case of a dispute, tax residency has been decided by the text of income tax treaties concluded with other jurisdictions and by criteria established by the Federal Tax Authority of the UAE.
Previously, tax residency was limited to a requirement of physical presence in the UAE for a period of minimum 180 days for individual taxpayers along with the availability of an annual lease agreement.
For legal persons, the criteria have included availability of audited accounts and a minimum of one year establishment.
Under the new resolution, the Cabinet Resolution No.85 of 2022, any legal entity or establishment is a tax resident in the UAE if:
The entity was formed, established, or registered under UAE laws (except branches of foreign legal persons) or
Is treated as a tax resident under UAE law, more details of which should be forthcoming in the Federal corporate income tax legislation
For natural persons, they are considered a tax resident in the UAE if:
Their principal place of residence and their financial and personal interests are in the UAE or
The individual has been physically present in the UAE for 183 days or more in a 12-month period or
The individual is a UAE citizen, UAE resident, or GCC national who has a permanent place of residence in the UAE and has been physically present in the UAE for 90 days over a 12-month period; performs a job or business in the UAE
The Resolution also deals with special cases where an international agreement such as a tax treaty specifies certain condition to determine tax residency. In this case, the Resolution states that the international agreement shall continue to apply, so that UAE persons assessing their tax residence for the purposes of applying a tax treaty would need to refer to the specific criteria set forth in the treaty itself.
The Resolution set out a procedure where persons assessing their tax residency can apply to the tax authority for a tax residency certificate. Such a certificate is often a formal requirement for UAE residents wishing to claim tax relief or other benefits in another jurisdiction under the relevant tax treaty.
The new criteria move the UAE towards their plan to raise its corporate tax from 0% to 9% from 1 June 2033.
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