Recently, the UAE announced fresh guidelines for identifying tax residency, and these guidelines have significant implications for individuals and businesses operating within the country.

Prior to the announcement of Cabinet Resolution No. (85) of 2022, there was no legal definition of UAE Tax Residency. This new legislation aims to keep pace with the evolving tax environment in the UAE, as well as to comply with international taxation and align with the country’s new corporate tax structure.

The resolution provides a framework for identifying the tax domicile of juridical and natural persons in the UAE, based on factors such as primary place of residence, physical residence, and employment. Whether you’re a resident or expat in the UAE, this is essential information that you won’t want to miss.

The following are established criteria for determining the tax residency of both juridical and natural persons in the UAE:

• Juridical PersonAs per the Resolution, a juridical person should be considered a UAE tax resident if they meet either of the following requirements:
  • It has been established, incorporated, or recognised in accordance with the laws of the state, with the exception of a branch registered by a foreign juridical person in the state.
  • It is recognised as a tax resident under the current tax laws of the state.
• Natural PersonsArticle 4 of the resolution outlines the criteria for natural persons to be considered tax residents in the UAE. These include:
  • Having the UAE as their customary or primary place of residence and centre of their financial services and personal activities
  • Residing physically in the UAE for at least 183 days over 12 months
  • Being a GCC national, resident or citizen who has resided in the UAE for at least 90 days in the past year
    • Staying permanently in the UAE, or
    • Operating a company or employment in the UAE.
• Implementation of International AgreementsThe recently announced UAE Cabinet Resolution No. (85) of 2022 on determining tax residency also addresses the implementation of international agreements that establish specific criteria for assessing tax residency.

  According to the resolution, these international agreements will remain in effect, and individuals and businesses in the UAE must refer to the criteria outlined in the agreement itself to determine their tax residency status for the purpose of implementing the agreement.

  This provision reflects the UAE’s commitment to complying with international tax standards and demonstrates the country’s efforts to align its tax policies with global regulations. Therefore, it is crucial for taxpayers in the UAE to stay informed about international agreements related to taxation and their specific requirements.

• Competencies and Cooperation with State Agencies and AuthoritiesTo facilitate the implementation of the resolution, the Federal Tax Authority is empowered to request and obtain information, facts, or related documents from any state government agencies. This cooperation is crucial for the Authority to accurately determine the tax residency of any person in the UAE.

  All state government agencies are obligated to fully cooperate with the Authority and provide it with any material, data, or records it requires about any person. Such collaboration will ensure the efficient and effective enforcement of the new guidelines for determining tax residency in the UAE.

Takeaway

To ensure an unbiased basis and comply with international tax procedures, it is important for businesses and individuals in the UAE to follow the criteria outlined in the resolution to determine their tax residency in the country. This new development is significant and highlights the country’s efforts to align with global taxation standards.

The implementation of this resolution is also expected to improve the UAE’s reputation in the global business community, as it shows a commitment to complying with international tax standards. It will also facilitate the exchange of tax-related information between the UAE and other countries, promoting greater transparency and accountability.