UAE: New Tax Residency Rules And The Tax Residency Test

You may reside in several countries, but you can only be a tax resident of one country at a time. A tax residency certificate also called a tax domicile certificate, is a legal document that attests to the fact that you pay taxes to a certain nation and entitles you to double taxation avoidance agreements. The UAE Ministry of Finance issues tax residency certificates that are valid for a year.

Now, a new rule has been announced by the UAE government to determine the residency of natural and legal persons for the purposes of taxation. With effect from March 1, 2023, the new criteria (officially known as Cabinet Resolution No. (85) of 2022) will broaden the criteria for UAE tax residency for both individuals and entities. A statutory definition of "tax residency" was not previously present in the UAE. By issuing tax residency certificates, the Ministry of Finance, which was later replaced by the Federal Tax Authority (FTA), determined the tax residency of both natural and legal persons (TRCs).

The primary factor used to determine tax residency for natural persons was the number of days spent in the UAE (greater than 183 in a calendar year), as long as this was supported by certain documented standards. According to the FTA, companies must be incorporated for a minimum of one year and provide certain documentary evidence to prove their tax residency.

Tax residency test

A natural person (i.e., an individual) would be considered a tax resident of the UAE under the Resolution if:

• The person has resided physically in the UAE for at least 183 days out of the last 12 months.
• A resident of the UAE or the center of the individual's financial and personal interests is in the UAE, or he meets another condition prescribed by the Ministry.
• Over a 12-month period, the individual has been physically present in the UAE for a period of 90 days or more and is a UAE citizen, UAE resident, or GCC national who either
• Has a permanent residence in the UAE
• Has a job or business in the UAE

The Resolution states that a legal person (such as an entity or establishment) shall be deemed to be a tax resident in the UAE if it:

• Established, formed, or registered in accordance with UAE laws (excluding foreign legal persons' branches).
• Is considered to be a tax resident in accordance with UAE tax law.

The new tax residency test would be implemented by the FTA, and the FTA would also be in charge of granting TRCs in compliance with the new test. However, there may be significant changes made to the current process and documentation specifications for acquiring the TRC. If you need more clarity on the new statutory definition or want to get a tax residency certificate, it is advisable to consult a leading tax adviser in the UAE. Reyson Badger, one of the top tax advisers in Dubai, UAE, can help you with this. With years of experience and being updated with the latest norms and legal requirements of the UAE, we can offer you a top-notch and hassle-free service.