On September 9, 2022, the UAE Cabinet of Ministers announced Decision No. 85 of 2022, which establishes a new domestic definition and standards for when a person or a legal entity shall be regarded as a Tax Resident of the UAE for the purposes of any UAE tax law or Double Tax Treaty. The new regulations will go into effect on March 1, 2023.
The domestic tax resident definition is in line with generally accepted rules and provides more clarity to both people and legal entities regarding their UAE tax residence status.
Many of the bilateral tax treaties entered into by the UAE with other territories require reference to the UAE’s domestic legislation in assessing whether a person is a resident of the UAE for the purposes of the particular treaty. This new domestic law adds clarity, which will make it easier to apply these accords and issue tax residence certificates under such treaties.
A natural person will be considered a UAE Tax Resident if the individual:
- having their normal or primary place of residence in the UAE, as well as their center of financial and personal interests;
- was physically present in the UAE for a total of 183 days or more in a 12-month period;
- was physically present in the UAE for 90 days or more in a 12-month period and the individual is a UAE national, has a valid residency visa in the UAE, or is a national of any GCC Member State, where:
(i)he or she has a permanent address in the UAE; or
(ii)he or she works or operates a business in the UAE.
What does the new UAE Tax Resident definition mean for individuals?
- Individuals will not be liable to personal income tax in the UAE as a result of the implementation of the new UAE tax residence rules.
- The UAE levies no personal income tax on individuals’ employment or other personal income. As such, where individuals meet the above criteria to be considered a UAE Tax Resident, they would generally not be subject to taxation in the UAE on their personal income.
- The new Tax Resident definition provides additional clarity to individuals regarding their UAE tax residency position under bilateral tax agreements the UAE has entered into with other territories, many of which make reference to the domestic laws of the UAE in determining whether a person is a resident of the UAE for purposes of the treaty.
The new definition of juridical person broadly refers to an entity founded or otherwise recognised by UAE law or the laws of a foreign jurisdiction that has a legal entity distinct from its founders, owners, and directors. A limited liability company, a foundation, a public or private joint stock company, and other entity forms with separate legal identity under UAE mainland legislation or free zone regulations are examples of UAE juridical persons.
(A) legal individual is regarded as a UAE tax resident if:
a. it is incorporated, constituted, or otherwise recognised in the UAE; or
b. it is otherwise regarded as a UAE Tax Resident under applicable UAE legislation.
UAE branches of a local or international legal entity are an extension of their “parent” or “head office” and are not regarded as different legal entities. As a result, a branch of a foreign juridical person registered in the UAE is not normally considered a Tax Resident of the UAE.
What does the new UAE Tax Resident definition mean for juridical persons?
- Under the Corporate Tax Law, judicial people who are considered UAE Tax Residents may be liable to Corporate Tax in the UAE.
- To decide whether a foreign juridical entity is a Tax Resident, the Cabinet Decision refers to the “relevant Tax Law” (the Corporate Tax Law). The UAE tax residence requirements for everyone else are outlined in Cabinet of Ministers Decision No. 85 for 2022.
