What is tax residency?
Tax residency refers to the country in which you are a tax resident, meaning the country in which you are registered to pay income tax. The criteria for tax residency vary considerably from one jurisdiction to another, and "residency" may differ for other, non-tax purposes. In this article, we explain all the relevant factors to help you determine your tax home.
Tax domicile in the UAE
The United Arab Emirates government recently published a Cabinet Resolution detailing the guidelines for determining the tax residency of individuals and legal entities in the UAE. Before this resolution, there was no legal definition of tax residency in the UAE. This article highlights the purpose of the legislation:
to specify the requirements and conditions for determining a person's tax residency under the UAE tax regime.
However, in order to adapt to the international tax regime and the dynamics of the global economy, the Emirates drafted this legislation to keep pace with the country's constantly evolving tax landscape. This is consistent with the new corporate tax regime that the UAE plans to implement starting in June 2023.
Dubai previously had no legal definition of "tax residency." The tax residency of legal entities was based on the establishment of the entity for a minimum period of one year and the provision of certain documentary evidence, as required by the FTA. The tax residency of individuals was determined primarily based on the number of days spent in the UAE - more than 183 days over a 12-month period - supported by certain documentary requirements.
Tax residency criteria and scope
Legal entity
Under the Cabinet Resolution, a legal entity will be considered a tax resident in the Emirates in any of the following cases:
- It was incorporated, established, or recognized in accordance with the legislation in force in the UAE, which does not include a branch registered by a foreign legal entity in the UAE;
- It is considered a tax resident under the tax legislation in force.
Individual
An individual will be considered a tax resident in the UAE when any of the following conditions is met:
- The individual's habitual or principal place of residence is in the UAE and the center of their financial and personal interests is in the UAE, or the individual meets the conditions and criteria determined by a ministerial decision;
- The person was physically present in the UAE for a period of 183 days or more during a 12-month period;
- The person was physically present in the United Arab Emirates for a period of 90 days or more during a 12-month period and is a citizen of the United Arab Emirates, holds a valid UAE residence permit, or is a national of a member state of the Gulf Cooperation Council, and meets one of the following criteria:
- Has a permanent place of residence in the UAE;
- Carries out employment or business activities in the UAE.
A person who is considered a tax resident in the UAE under the provisions described above may apply to the Federal Tax Authority for a tax residency certificate. If the FTA is satisfied that the applicant meets the stated requirements, it may approve the application and issue the tax residency certificate.
Any UAE government agency will be responsible for issuing clarifications and guidelines for implementing the provisions of the resolution. The minister will publish a decision specifying the form and manner of issuing certificates to determine tax residency for the purposes of double taxation treaties.
What is essential about this new law is that it clearly defines the terms "individual" and "legal entity" and broadens the criteria applicable to individuals. This legislation represents a step forward toward establishing clearer definitions of the tax residency of legal entities and individuals residing in the UAE. It helps identify the tax liability of entities and facilitates the implementation of double taxation treaty provisions.
Experienced French lawyers are available to assist you
Our team consists of French lawyers and accountants who can help you determine whether you qualify for tax residency in the United Arab Emirates. Our firm, located in Jumeirah Lake Tower, is open Monday to Thursday from 9 a.m. to 5 p.m.
For more information, please contact us at
support@merritt.group.
