New UAE tax residence test
The United Arab Emirates (UAE) recently released Resolution No. (85) on Determining Tax Residency, which will take effect on March 1, 2023. This resolution outlines the rules for determining when an individual (either a natural or legal person) can be considered a tax resident in the UAE and related administrative matters such as the procedures for issuing tax residence certificates (TRCs) and the issuance of further clarifications and directives for the implementation of the resolution. Previously, the concept of tax residency in the UAE had been tied to the existence of international agreements (namely, international conventions against double taxation) that the UAE had concluded with various jurisdictions around the world. In the absence of national legislative provisions on tax residency, TRCs have been issued based on specific residence criteria set out in relevant tax treaties, along with other eligibility criteria established by the Federal Tax Authority (FTA). These new provisions, which we will explore below, take effect on January 1, 2023. Under the resolution, a business entity (i.e. a legal person) should be considered a tax resident of the UAE if its management and control are exercised in the UAE. For a natural person to be considered a tax resident of the UAE, they must either spend 183 days or more in the UAE in a tax year, or their home and personal economic ties are in the UAE. The resolution also outlines the priority given to international agreements in the event of any conflict or inconsistency with national law, as well as the powers and cooperation of the FTA in implementing the resolution.
Here is the full text:
The UAE Tax Residency Legislation i.e., the Cabinet Resolution No. 85 of 2022 is said to become effective from March 1, 2023.
Article 1: Definitions
This Article is the definition clause and states out the definitions of the terms used in the Legislation. Amongst other it defines the terms “Tax Resident” and “Residence Permit”.
Article 2: The Aims
The Article drafts out the aim of the Legislation: To specify the requirements and conditions for the determination of tax residency of a person under the UAE tax regime.
Article 3: Legal Person
A “Legal Person” shall be considered as a tax resident under the Legislation, if such entity was:
(a) established; or
(b) formed; or
(c) recognized
under the UAE laws. However, branch of a legal entity, which is registered under a foreign legal person, shall not be considered a ‘legal person’ under the UAE tax regime.
Article 4: Natural Person
To qualify as a “Natural Person” under the definition of the Legislation, one or more of the following conditions should be met:
- A person’s usual or principal place of residence, and his primary financial and personal interest are within the UAE or; the person fulfils the criteria specified by a decision of the Minister of Finance; or;
- A person can provide evidence of his physical presence within the State for a duration of 183 days or more during the relevant 12-month period; or
- A person can provide evidence of his physical presence within the State for a duration of 90 days or more, during a period of 12 months and holds the nationality of the State, or has a valid residence permit in the country, or is a national of any of the Member States of the Gulf Cooperation Council (“GCC”), and fulfils either of the following:
- He has a permanent place of residence in the State or;
- He is doing a job or business in the State.
Article 5: Tax Citizen’s Certificate
A person who falls under the definitions of either a “Legal Person’, or “Natural Person” can submit an application to the Federal Tax Authority (“FTA”) and get a Tax Domicile Certificate issued in his name. The FTA shall ensure the person has met all the conditions as the Legislation and at its discretion issue the certificate.
Article 6: International Agreements
In case a person falls under any of the provisions of any international agreement, entered into by the UAE, for the determination of his tax domicile, the provisions of the agreement shall supersede the provisions of this Legislation, for the purposes of the international agreement only. The Tax Ministry is yet to specify the details regarding the issuing of certificates for the determination of tax domicile under the international agreement.
The Article states that for effective implementation of the Legislation, the FTA may request all information, data and other documents of persons from all government agencies in the State. All agencies are required to fully cooperate with the FTA with regards to any request for providing the necessary information.
Article 8: Executive Decisions
The Ministry of Finance will issue the necessary guidelines and directions for the proper implementation of the provisions of the Legislation. Since this is a fairly new law, the details are yet to be sketched out. The FTA, under this Article is responsible to issue directives and clarifications for the smooth implementation of the Legislation.
Article 9: Publish The Decision And Act On It
The Legislation is set to come into effect from March 1, 2023.
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