The UAE is a popular destination in the World for business and residency due to its favorable tax environment and strategic location. However, it is difficult for individuals or legal entities to manage tax residency with new criteria and regulations in the UAE.
To address these challenges and align with international standards, the UAE Cabinet issued Decision No. 85 of 2022, introducing a clear national definition and criteria for tax residency. This was further clarified by Ministerial Decision No. 27 of 2023, published on 1 March 2023, which provided additional details on UAE tax residency for individuals.
This positive move modernizes the UAE’s tax system and aligns it with international best practices. In this article, we cover the tax residency, including eligibility criteria for both individuals and legal entities, double taxation agreements, and benefits. We also highlight the possible measures to maintain your tax residency and how tax experts at Now Consultant can help you manage your tax residency in compliance with the latest regulations.
What Is a Tax Residency In the UAE?
Tax residency in the UAE signifies that UAE authorities recognize an individual or entity as a tax resident. This designation allows individuals and businesses to access benefits such as avoidance of double taxation, eligibility for tax treaties, and the absence of personal income tax.
For individuals, tax residency provides clarity on their financial obligations, especially for those with international income sources. Businesses benefit from tax residency by lowering international tax risks and simplifying operations within the UAE’s economic zones.
Dubai Tax Residency Requirements & Eligibility Criteria:
The following criteria must be met for tax residency for an individual and an entity for both individuals and entities:
1. Tax Residency Criteria For Individuals
To qualify as a UAE tax resident, an individual must meet one of the following conditions:
- Primary Residence and Interests: The person should live mostly in the UAE, and their financial and personal matters should also focus on the UAE.
- Physical Presence for 183 Days: The individual must have been physically present in the UAE for at least 183 days within a continuous 12-month period.
- Physical Presence for 90 Days with Specific Conditions: If the individual has been in the UAE for 90 days or more in a continuous 12-month period and is either:
- A UAE national,
- A GCC national, or
- Holds a valid UAE residence permit,
- They must also either:
- Have a permanent residence in the UAE, or
- Be employed or conduct business activities in the UAE.
Impact of the Tax Residency on Individuals:
- No Personal Income Tax: If someone qualifies for UAE tax residency, they do not have to pay personal income tax. The UAE does not charge taxes on salaries or other personal income.
- Clarity for International Tax Agreements: The updated tax residency definition provides more clarity for individuals regarding their tax residency status, especially under bilateral tax treaties the UAE has signed with other countries.
Tax Residency Criteria For Juridical Persons (Entity)
The term “juridical person” refers to an entity that is legally recognized under UAE laws and has its own legal identity. Examples of juridical persons in the UAE include:
- Limited liability companies (LLCs)
- Foundations
- Public or private joint-stock companies
- Other entities have separate legal identities, defined by UAE mainland laws or Free Zone regulations.
A juridical person is considered a UAE tax resident if:
- It is incorporated, formed, or legally recognized in the UAE or
- It qualifies as a tax resident under applicable UAE laws.
Branches of domestic or foreign juridical persons are treated as extensions of their parent entity or head office. For example, a branch of a foreign juridical entity registered in the UAE would generally not qualify as a UAE tax resident.
Impact of Tax Residency on Juridical Persons
- Corporate Tax Liability: Juridical persons classified as UAE tax residents may be subject to corporate tax under the UAE Corporate Tax Law.
The above information clarifies the criteria for tax residency for both individuals and entities. Better to analyze whether you or your entity qualifies for tax residency, you should consult with the experts at Now Consultant.
UAE Tax Residency and Double Taxation Agreements (DTAs)
Double Taxation Agreements (DTAs) are agreements between two countries designed to prevent the same income from being taxed twice. The purpose of DTAs is to facilitate international trade and investment by providing clear rules for determining the tax residency of individuals and legal entities.
Additionally, DTAs outline how taxation rights on specific types of income are divided between the two countries. The UAE has entered into DTAs with over 130 countries, making it easier for individuals and businesses to benefit from reduced tax obligations and greater clarity in cross-border transactions
How To Maintain Your Tax Residency In The UAE
The following measures help you to maintain your tax residency in the UAE:
To maintain your tax residency in the UAE, you need a Tax Residency Certificate (TRC), as per Ministerial Decision No. 27 of 2023. For that purpose, the TRC is required to confirm tax status.
It enables individuals and businesses to benefit from double taxation agreements. A TRC is valid for one year, but you need to renew it before its expiration date is over to maintain your tax residency status in the UAE.
1. Monitor Your Physical Presence:
To maintain your tax residency in the UAE, you need to ensure you spend the required number of days within the UAE according to the guidelines provided in Decision No. 85 of 2022.
2. Establish Permanent Connections:
You must maintain permanent housing, business interests, or family ties in the UAE to show substantial connections in order to maintain your tax residency in the UAE.
3. Keep Detailed Records
You need to keep detailed records of your time spent in the UAE, including flight tickets and utility bills, to prove your tax residency claim.
By understanding these guidelines and meeting the requirements, individuals and businesses can ensure compliance with UAE tax residency regulations and continue getting benefits under international agreements.
Benefits of UAE Tax Residency:
The following are the benefits of tax residency in the UAE:
1. Tax Benefits for UAE Residents:
UAE tax residents have no personal income tax, wealth tax, or dividend tax. Investors benefit from the absence of capital gains tax on personal investments. Businesses are exempt from corporate tax and withholding tax on outbound payments. A 5% VAT applies to most goods and services, with some exceptions.
2. Double Taxation Agreements:
The UAE has agreements with many countries to prevent double taxation on income. Residents can obtain a Tax Residency Certificate (TRC) from the Ministry of Finance to access these benefits.
3. Financial Privacy and Banking Advantages
The UAE protects residents’ financial privacy by not participating in the Common Reporting Standard (CRS). Furthermore, the banking sector in the UAE offers advanced services and extensive credit facilities.
4. Flexible Residency Requirements
The UAE has simple residency rules compared to other countries. Residents need to visit the UAE only once every 180 days to maintain tax residency. This allows flexibility for travel and international business management.
How We Can Help You Get Tax Residency In Dubai, UAE
If you are facing problems in maintaining your UAE tax residency, the experts at Now Consultant can help you simplify it to benefit from UAE’s favorable tax environment. Our experts help you at every step, from determining your eligibility and obtaining a Tax Residency Certificate to ensuring compliance with the latest regulations.
We ensure you benefit from Double Taxation Agreements to avoid paying taxes twice, with no personal income tax, and take full advantage of the UAE’s flexible residency requirements. We help you avoid errors, fines, and penalties while maximizing the benefits of tax residency in the UAE.
