Tax Residency Rules Updated in the UAE for 2023

The United Arab Emirates (UAE) has revamped its tax residency regulations with the introduction of the Council of Ministers' resolution no. (85) of 2022. This new directive, unveiled by the Prime Minister on September 2nd, provides clarity on the criteria for determining tax residency in the nation.

This directive offers a comprehensive framework on the conditions under which an entity, whether an individual or a corporation, qualifies as a tax resident in the UAE. It also sheds light on the administrative procedures, including the issuance of tax residency certificates (TRC) and the rollout of further guidelines for the resolution's execution.

Historically, the UAE lacked a domestic legal definition for tax residency, relying instead on international treaties, such as Double Taxation Agreements. Without domestic tax residency rules, the Federal Tax Authority (FTA) issued certificates based on treaty-specific criteria and other eligibility benchmarks. These included a minimum residency duration of 180 days for individuals and certain requirements for corporations. However, these guidelines will undergo changes, effective from January 1, 2023.

Criteria for Corporate Tax Residency: The resolution stipulates that a corporate entity will be deemed a tax resident in the UAE if:

1. It's recognized, established, or formed as per UAE regulations, excluding foreign entities' branches registered in the UAE.
2. It aligns with the UAE's applicable tax laws.

While the UAE's corporate tax (CT) guidelines are still pending, insights from a public consultation document released on April 28, 2022, suggest that foreign-established companies might qualify as tax residents if their primary management and control are in the UAE.

Criteria for Individual Tax Residency: The resolution states that an individual will be considered a tax resident in the UAE if:

1. Their primary residence and main financial and personal interests are in the UAE, or they meet criteria set by the UAE's Ministry of Finance.
2. They've been in the UAE for at least 183 days within a 12-month span.
3. They've stayed in the UAE for a minimum of 90 days within a year and are either UAE nationals, UAE residents, or Gulf Cooperation Council (GCC) nationals with specific ties to the UAE.

These definitions seem to resonate with global best practices, albeit with some unique nuances. The resolution's specific references, especially concerning tax residency "as per the state's applicable tax law," suggest that the "UAE tax residency" definition might undergo further refinements.

International Agreements and Their Precedence: If an international treaty, like a tax agreement, outlines specific tax residency conditions, those terms will take precedence over the new resolution. Hence, UAE citizens should consult the specific criteria of the international treaty when determining their tax residency.

Role of the UAE's Tax Authority: Individuals qualifying as tax residents under the new criteria can approach the Tax Authority for a tax residency certificate, a common requirement for those seeking treaty-related benefits. The Tax Authority will issue the certificate if the applicant meets the necessary conditions and will also provide further clarifications for the resolution's smooth implementation.

Concluding Thoughts: Entities and individuals in the UAE should familiarize themselves with the resolution's provisions to ascertain their UAE tax residency status. With the anticipated rollout of the UAE CT legislation, UAE businesses should also consider these rules in conjunction with any upcoming tax residency regulations.

The current framework requires individuals seeking a residency certificate to show a 180-day in-country presence. However, the new guidelines reduce this to 90 days for certain residents. If the upcoming regulations affirm this, the UAE might become a preferred tax residency choice for affluent individuals and businessmen with multi-jurisdictional economic interests.

Regarding corporations, this resolution is another step towards direct taxation in the UAE. A holistic understanding of the UAE's direct taxation landscape would require insights from:

1. The upcoming 9% corporate tax executive regulation.
2. Future tax residency regulations from the Ministry of Finance.
3. The Federal Revenue Agency's guidelines on tax residency certificate issuance.

Disclaimer: Always speak directly to an attorney; blog posts are not a sufficient source of information to make decisions, may not be appropriate for your situation, may not be well researched, and may not be current at the time you read them, always speak directly with an attorney.

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