UAE Unveils Tax Residency Resolution In Treaty Context

The UAE has finally unveiled its resolution on tax residency, a set of guidelines that outline the rules to determine if an individual can be considered a tax resident of the UAE or not.

The rules would be applicable to naturalized citizens too. The regulations have been introduced in a treaty context to address the tax residency concept of the UAE.

Until now, there were no clear regulations, and disputes on tax residency were decided by the text of income tax treaties, which were concluded with other jurisdictions and by the criteria established by the Federal Tax Authority.

When it came to individual taxpayers, these included an annual leader agreement, along with at least 180 days of residence in the UAE. However, now these are being replaced with tests of residence that will check if a naturalized citizen is a tax resident or not.

Under Cabinet Resolution No. 85, 2022, these are the criteria for the determination of tax-resident status for a person or an entity:

For Entities:

The entity should have been formed or registered in accordance with the laws of the emirates, with the exception of foreign legal persons.

The entity or person should be treated as a tax resident under the applicable tax law. Further details will be shared on the Federal corporate income tax legislation manual.

For persons:

The individual's main place of residence should be in the UAE and it should also be the center of their personal and financial interests.

The individual should have been physically present in the UAE for a period of 183 days or more, within a period comprising 12 days.

The individual should have been physically present in the UAE for over a period of 90 days or more. They should either be resident, a citizen, or GCC national who either has a permanent place of residence in the UAE or has a job/business here.

"To me, this is another step that the UAE is taking toward a global tax compliance framework and is an expected move with the new company tax that is being introduced in 2023," Brett Evans, who is the managing director of Emea at Atlas Wealth Management, was quoted as saying by the International Adviser.

"With the existing Double Taxation Agreements (DTA) that the UAE has with many countries, along with more forecasted to be agreed upon, this legislation is a logical step to provide both companies and natural persons with a clearer position when determining tax residency in-line with global standards," he added.