According to experts in the UAE, a recent ministerial decision on tax residency determination will benefit expats living in the country. The Ministry of Finance (MoF) issued Ministerial Decision No. 27 of 2023 earlier this month to implement certain provisions of Cabinet Decision No. 85 of 2022 on the determination of tax residency.
This decision outlines the number of days an individual must be physically present in the UAE to be considered a tax resident and other requirements for natural persons and legal entities to be characterized as a tax resident in the UAE.
The new decision aims to avoid double taxation and aligns the definition of domestic tax residency with internationally recognized standards. Arun Leslie John, Chief Market Analyst at Century Financial, stated that this new criterion will make it easier for individuals and entities to have clarity on their tax residency position within the country, which is important given that the UAE is home to people from across the world.
The Domestic Tax Residency regulation defines a UAE tax resident as either a natural person or a juridical person. A natural person is defined as an individual with a permanent place of residence in the UAE or is employed or has a business in the UAE. UAE nationals, valid permanent resident permit holders, or GCC member state nationalities must be physically present for 90 days or more over a 12-month period. The regulation also refers to individuals who have spent 183 days or more in the UAE over a consecutive 12-month period, the UAE is their primary residence, or the UAE is their base for financial and personal interest. A juridical person refers to a legally separated business/entity established or recognized in the UAE.
UAE residents who are eligible can apply to the Federal Tax Authority to obtain a tax residency certificate, which is a formal requirement if they wish to apply for tax relief or claim benefits in a different jurisdiction under the applicable tax treaty. The UAE has double taxation treaties and bilateral agreements with 137 countries, which reference the UAE’s domestic laws and are essential in determining an individual’s tax residency status. If the requirements are met, a UAE resident can easily apply to obtain a tax residency certificate (TRC) to use as proof of tax payment.
Being a UAE tax resident does not make an individual subject to personal income tax, but it will help individuals who meet the criteria to understand their tax residency position. The UAE 9% Corporate Tax (CT) will be active from June 2023. The new CT policy is still competitive against global corporate tax rates, and a 0% CT rate for taxable income up to Dh375,000 should support small and medium businesses as well as startups.