UAE Announces Guidelines for determining Tax Residency

The Cabinet Resolution No. (85) of 2022 on determining tax residence was recently announced by the Federal Tax Authority of the UAE, which will be put into operation on March 1, 2023. There was no legal definition of UAE Tax Residency prior to the resolution. But the administration designed the legislation to keep up with the nation’s constantly changing tax environment in order to comply with international taxation and also to be in line with the new corporate tax structure that the UAE intends to put into place starting in June 2023.

For assessing whether an individual may be classified as a UAE tax resident, certain regulations have been implemented. The following is a summary of the criteria that have been defined for identifying the tax domicile of juridical and natural persons in the UAE:

I. Juridical Person

According to the Resolution, when one of the following requirements is satisfied, a juridical person should be regarded as a UAE tax resident:

• Where it has been established, incorporated, or acknowledged in conformity with the laws in effect in the state, since this excludes the branch that is registered by a foreign juridical person in the state
• It is regarded as a tax resident in compliance with the state’s current tax law.

II. Natural Persons

Natural persons are considered tax residents in the UAE under Article 4 of the resolution if any of the following criteria is satisfied:

1. The UAE is the person’s customary or primary place of residence, and the UAE is the focus of their financial and personal activities, among other requirements and specifications stated in a particular decision (to be) made by the UAE MoF.
2. The person has resided physically in the UAE for at least 183 days throughout the span of a 12-month period.
3. The person is a GCC national, a resident of the UAE, or a citizen of the UAE who has physically resided in the country for at least 90 days in the past 12 months.
   • Stay permanently in the United Arab Emirates; or
   • Operates a company or an employment in the UAE

III. International agreements being implemented

The resolution stipulates that an international agreement should remain in effect if it lays forth specific requirements for assessing tax residency. Therefore, UAE people will have to look to the precise criteria outlined in the international agreement itself for determining their tax residence for the intention of implementing an international agreement.

IV. Competencies and Cooperation with Authority

For the purpose of carrying out the terms of this resolution, the authority can ask all state government agencies for any information, facts, or related documents about any person.

For the purposes of carrying out the terms of this resolution, all state government agencies are required to fully cooperate with the Authority. This includes giving the authority any material, data, or records it requests about any person.

Bottom Line

Businesses and individuals in the UAE should adhere to the resolution’s criteria in order to properly determine their resident status for tax purposes in the UAE. This is a really remarkable development that will guarantee conformity with procedures used in other nations and therefore provide an unbiased basis.

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