Tax residency in the UAE is a concept that appeals to many due to the nation’s business-friendly climate and tax advantages. Navigating the nuances of becoming a tax resident can be complex for individuals or legal entities. Understanding the UAE’s tax residency landscape has become more crucial with new criteria and regulations. We’re here to explain the intricacies of establishing and maintaining tax residency in the UAE, outlining the eligibility requirements, application processes, and the associated benefits. It provides a comprehensive guide for expatriates, investors, and businesses looking to leverage the UAE’s favourable tax system while adhering to international standards and benefiting from double tax treaties.
The United Arab Emirates (UAE), a federation of seven Emirates, is celebrated for its stable political climate, cutting-edge infrastructure, and open trade policies. The nation has broadened its economic horizons, reducing its dependence on the energy sector. A standout feature of the UAE’s tax scene is the lack of personal income tax on your employment or other personal income. This tax environment is particularly attractive to expatriates and investors, bolstering the UAE’s image as a business-friendly hub.
Tax residency in the UAE is determined by specific criteria set out by the UAE Cabinet of Ministers’ Decision No. 85 of 2022, which came into effect on 1 March 2023. Under this decision, you’re considered a tax resident of the UAE if you have a primary place of residence in the country and your centre of financial and personal interests is there. Moreover, tax residency can be established by physical presence, requiring you to be in the UAE for at least 183 days within a consecutive 12-month period.
Alternatively, if you spend at least 90 days in the UAE within 12 months and either hold a UAE residence permit, are a UAE national, or are a national of a Gulf Cooperation Council (GCC) member state and have a permanent residence or conduct business in the UAE, you might also qualify as a tax resident. The introduction of these criteria doesn’t mean you’ll now face personal income tax. Instead, it clarifies those looking to understand their tax residency status, especially regarding bilateral tax agreements.
The UAE has signed numerous double tax treaties (DTTs), and the new definition of tax residency will help apply these treaties and issue tax residency certificates.
It’s important to distinguish between tax residency and citizenship. Citizenship is a legal status given by a state to its nationals, while tax residency depends on your economic connections to a country. In the UAE, tax residency is key for applying for DTTs and doesn’t mean you’re a citizen.
The new tax residency rules aim to match international standards and offer clarity for individuals and legal entities about their tax situations. For legal entities, tax residency is determined by incorporation or recognition under UAE law or by being effectively managed and controlled within the UAE. The recent Cabinet Decision also clarifies that branches of foreign legal entities aren’t considered tax residents in the UAE.
The difference between tax residency and citizenship also shows in how foreign individuals doing business in the UAE are treated. Under the UAE Corporate Tax Law, such individuals may be seen as “Resident Persons” for taxing business income, which is different from their status as tax residents for other tax purposes.
Both individuals and legal entities can obtain a TRC to take advantage of the UAE’s DTAA network. For individuals, a stay of at least 183 days during the financial year in question is required. This applies to expatriates with a valid residence permit as well as GCC nationals who have a permanent home or are engaged in business or employment in the UAE.
Legal entities must have been incorporated in the UAE for a minimum of one year to be eligible for a TRC. However, branches of foreign companies and offshore companies are excluded. Additionally, entities must be registered for VAT to obtain certificates related to commercial activity.
Applicants must use the EmaraTax portal managed by the FTA to apply for a TRC. The process, which takes about 45 minutes, involves either logging in with existing credentials or registering a new account. The FTA typically processes applications within five business days after receiving a complete submission. The TRC is issued for one year from the beginning of the financial year for which it is requested and does not extend to future periods, except for government entities.
The documentation required for the TRC application varies depending on whether the applicant is an individual or a legal entity. Individuals must provide their passport, residence permit, Emirates ID, a certified copy of their residential lease agreement, and an income or salary certificate. Additionally, a six-month bank statement from a local bank, entry and exit reports, proof of a permanent home, and details of the income source are necessary.
Legal entities need to submit their trade licence, proof of authorisation, a certified copy of their audited financial statements, and a certified lease agreement or tenancy contract. A six-month bank statement from a local bank and, if applicable, a certified copy of the Memorandum of Association are also required.
In addition to the absence of personal income tax, the UAE does not levy wealth or dividend taxes on individuals. The lack of capital gains tax on personal investments is a significant advantage for investors and entrepreneurs.
Businesses also benefit from the favourable tax landscape, with no corporate tax on profits and no withholding tax on outbound payments. It should be noted that a 5% VAT is applicable to most goods and services, with certain items attracting higher taxes.
The UAE’s network of DTTs helps prevent double taxation on income earned from countries within this network, providing relief for those with international financial interests. The tax residency certificate, issued by the Ministry of Finance, is essential for individuals and entities to utilise the benefits of DTTs. This certificate, which must be renewed annually, is recognised by UAE authorities and enables tax residents to claim tax exemptions in their countries of permanent residence.
The UAE’s commitment to financial privacy is evident as it does not engage in the CRS. This policy provides a higher level of confidentiality for tax residents’ financial information. The country’s banking sector offers comprehensive services and credit facilities, contributing to its reputation as a global financial centre. The political stability and favourable business climate further solidify the UAE’s position as a desirable location for tax residency.
The criteria for maintaining tax residency status in the UAE are less stringent than in many other countries. Individuals are required to enter the UAE at least once every 180 days, which allows for considerable travel flexibility and the ability to manage international business without the need to reside predominantly in the country.
The TRC, also known as the Tax Domicile Certificate, is a crucial document. It confirms your tax status and lets you take advantage of double taxation agreements. These certificates are valid for one year, necessitating attention to their expiry to maintain tax residency status.
To qualify for a TRC, individuals must have lived in the UAE for at least six months and hold a valid residency permit that’s been active for no less than 180 days before applying. To be eligible, companies must have been established on the UAE mainland or in any free zone for at least one year. Offshore companies are ineligible for a TRC but may apply for a tax exemption certificate.
Renewing your TRC is an annual task that begins with a pre-approval stage, typically taking 4-5 business days with the FTA. Once your application is approved and the fees are paid, the certificate is usually issued within five business days.
Ministerial Decision No. 27 of 2023 has recently clarified the definitions related to tax residency for individuals, aligning with international standards. Since 1 March 2023, this decision outlines the criteria for tax residency, including having a primary residence in the UAE and meeting physical presence requirements.
The UAE’s tax residency criteria are closely tied to your presence and activities within the nation. A company is seen as a tax resident if it’s incorporated or recognised in the UAE or if it meets other specific legislative criteria.
For individuals and companies, the TRC application process involves submitting a form and the necessary documents to the FTA portal. The required documentation varies for companies and individuals but usually includes proof of identity, financial statements, bank statements, and lease agreements. Once your application is approved, the TRC is issued. This certificate is key when you’re applying for withholding tax limitations or exemptions under DTTs, thus providing tax benefits or refunds in foreign countries where you might also be considered a tax resident.
The duration of establishing tax residency in Dubai hinges on several conditions. For individuals, the time spent within the nation’s borders is crucial. You may be eligible for tax residency if you’ve resided in the UAE for a minimum of 183 days over 12 months.
Alternatively, having a permanent home or job in the UAE and being physically present for no less than 90 days within the same period also suffice. The procedure to acquire a TRC, which formally acknowledges your tax residency status, generally involves a pre-approval phase of about 4 to 5 working days. Following approval, the TRC is typically issued within an additional 5 to 7 working days.
The 183-day rule is a key determinant for tax residency in Dubai. It stipulates that you may be considered a tax resident if you’ve spent the specified days in the UAE over 12 months. This regulation considers additional factors, such as the location of your primary residence and central financial and personal interests within the UAE. The days spent in the UAE need not be consecutive.
The TRC provides proof of tax residency in the UAE. To obtain this document, applicants must submit the required paperwork to the FTA. For individuals, necessary documents encompass your passport, Emirates ID, UAE Residence Visa, a certified copy of your residential lease agreement, a bank statement, and an entry and exit report, among others.
For companies, the required documentation includes a trade licence, audited financial accounts, and a certified copy of the lease agreement. The TRC serves as evidence to apply for withholding tax limitations or exemptions under DTTs and verifies your tax residency status.
To transfer your tax residency to Dubai, you or your company must satisfy the conditions stipulated by the UAE’s tax regulations. For individuals, this involves establishing your primary domicile in the UAE, demonstrating that your financial and personal interests are primarily located there, and meeting the physical presence criteria.
After ensuring these requirements are met, you can apply for a TRC through the FTA’s online platform. Ensure your application is supported by the appropriate documents, which differ for individuals and companies. It’s also vital to consider any international agreements or tax treaties affecting your tax residency status. Completing the application process and receiving your TRC allows you to leverage the UAE’s tax system and claim tax treaty benefits.
Navigating the UAE tax residency landscape is well worth pursuing for individuals and corporations looking to capitalise on a business-friendly environment. With the clarity the UAE provides through its tax residency criteria and the tangible benefits, from taxation exemptions to financial privacy, the nation stands out as a beacon for international economic interests.
As you consider making the UAE your tax haven, remember to maintain your residency status meticulously and keep abreast of policy changes.
The effort to secure and renew your Tax Residency Certificate is a small price for this vibrant jurisdiction’s economic liberties and advantages. Whether you are a globe-trotting entrepreneur or a corporate entity with global ambitions, the UAE tax residency framework is your gateway to thriving in a world of fiscal opportunity.