The UAE government released the Cabinet Decision No. 85 of 2022 on September 2nd, 2022, to establish tax residency regulations in the country. These regulations determine when an individual or entity, such as a natural person or a juristic person like Limited Liability Companies, public joint stock companies, and foundations, may be recognized as a tax resident in the UAE. The regulations align with globally recognized standards and will be enforced from March 1, 2023.
According to Article 3 of the Cabinet Decision, a legal or juristic individual is a tax resident if:
It is founded, formed, or recognized under the country’s legislation (this does not apply to a branch registered by a foreign juristic person), or it is a tax resident under the country’s tax law.
Under Article 4, a natural person will also be deemed a tax resident if:
- Their primary place of residence and centre of financial and personal interests are in the UAE, or
If they have spent 183 days or more physically present in the UAE during a consecutive 12-month period, or
If they have spent 90 days or more physically present in the UAE during a consecutive 12-month period, and they are either a UAE national, hold a valid residence permit in the UAE, or are a GCC national, then they must also:
- Maintaining a permanent residence within the country
- Engaging in employment or business activities within the country
Under the new Corporate Tax regime, UAE Tax Resident certificate legal entities may be subject to the new Corporate Tax starting from June 1, 2023, as per Federal Decree-Law number 47 of 2022 concerning the taxation of corporations and businesses. Meanwhile, foreign legal entities may also be required to pay taxes, but only under the Corporate Tax regime.
According to Article 6 of the Cabinet Decision, if an international agreement such as a tax treaty outlines tax residency conditions for a UAE Tax Resident, those provisions will remain in effect. The Ministry of Finance will issue residency certificates in the prescribed form and method for such agreements.
If individuals fall under the definitions of tax residency mentioned above, they must obtain a Tax Domicile Certificate (TDC) by applying to the Federal Tax Authority (FTA), UAE, as per Article 5 of the Decision, to avail of the benefits and reliefs available.
The FTA is responsible for providing additional information and clarification on Cabinet Decision No. 85 of 2022. Additionally, it will establish regulations to gather the necessary information required for the implementation of the Decision’s provisions. UAE government entities are obligated to collaborate with the FTA to ensure the seamless execution of the Decision.
Previously, tax residency in the UAE was based solely on international treaties, with no domestic legislation in place. Introducing local tax residency criteria provides greater clarity and specific guidelines for those who fall under its jurisdiction.
