The United Arab Emirates (UAE) has rapidly evolved as a worldwide commercial enterprise hub, attracting marketers and companies from all around the world. With the advent of Federal Decree-Law No. 47 of 2022 on company taxation, understanding tax residency within the UAE has turned out to be vital for organizations and individuals alike. In this guide, we discover each aspect of tax residency within the UAE and tips on how to obtain a Tax Residency Certificate (TRC), along with its significance in navigating tax obligations.
Introduction to Tax Residency in the UAE
The Corporate Tax Law, which got into effect on 1 June 2023, introduces company taxation on groups running within the UAE. This consists of figuring out whether or not an individual, be it a juridical person or a natural person, qualifies as a Resident Person for company tax purposes.
What is Tax Residency & Tax Residency Certificate?
Tax residency establishes the legal connection between a person and a jurisdiction for taxation purposes. Each country, including the UAE, has its own rules for determining whether a person is a tax resident. A tax resident may be subject to taxes in the UAE on both UAE-sourced and foreign income, depending on their status.
A Tax Residency Certificate issued by the Federal Tax Authority (FTA) verifies that a juridical person or natural person is considered a tax resident in the UAE. This certificate is essential for benefiting from DTAs that the UAE has signed with other countries, which helps prevent double taxation and offers tax relief on income.
Resident Person under UAE Corporate Tax Law
A Resident Person can either be a juridical person (such as a company) or a natural person (an individual). The law distinguishes between Resident Persons and Non-Resident Persons, and this classification determines the scope of their corporate tax obligations.
A juridical person is considered a Resident Person in the UAE if:
Resident Juridical Persons
- It is incorporated, formed, or recognized under UAE law, or;
- It is incorporated elsewhere but its effective management and control is exercised in the UAE.
This includes various types of entities like Limited Liability Companies (LLCs), Public and Private Joint Stock Companies, Private Shareholding Companies, civil companies, trusts, foundations, and other organizations that operate under UAE law.
Free Zone Persons
Free Zone Persons, which include entities established in designated Free Zones in the UAE, are subject to the same residency rules. They can apply for a TRC, but special tax provisions may apply to them under the Free Zone regime.
Key Management and Control
Key decisions regarding business strategy, financial policies, and operations dictate where a business is effectively managed. If these decisions are primarily made in the UAE, even foreign-incorporated companies may be classified as Resident Persons.
To assess this, several tests are applied:
- Board of Directors Test: Evaluates whether the board independently makes decisions.
- Delegation of Authority Test: Assesses where delegated decisions are made.
- Shareholders Activity Test: Determines if shareholders influence major decisions beyond normal roles.
- Location of Key Decisions: Identifies where critical decisions are made, whether physically or virtually.
Resident Natural Persons
A natural person qualifies as a Resident Person if they meet one of the following criteria:
- Stay of 183 Days or More: The individual has resided in the UAE for 183 days within any 12 consecutive months.
- Stay of 90 Days or More with Additional Conditions: The individual has resided for 90 days or more, is a citizen of the UAE or GCC, holds a valid UAE Resident Permit, and has a permanent place of residence or conducts business in the UAE.
Tax Residency Under UAE Domestic Law
According to Cabinet Decision No. 85 of 2022, tax residency applies to both natural and juridical persons. Successful applications for a TRC can be submitted to the FTA, validating their tax residency status.
Tax Residency of Exempt Persons
Exempt Persons fall into four categories:
- Automatically Exempt: Government Entities are tax residents but may be taxed separately for activities outside their exempt purpose.
- Exempt with Notification: Businesses in natural resource sectors can claim exemptions if they notify the Ministry of Finance.
- Exempt by Cabinet Decision: Entities recognized under specific Cabinet Decisions that meet certain conditions.
- Exempt by Application: Certain funds and entities owned by exempt persons may apply for tax exemptions.
Double Taxation Agreements (DTAs)
The UAE’s DTAs help avoid the double taxation of income, clarifying which jurisdiction has primary taxing rights for individuals and entities that may be tax residents in multiple countries. DTAs supersede domestic laws, including the Corporate Tax Law and Cabinet Decision No. 85 of 2022.
Tie-Breaker Rules for Dual Tax Residency
If a person or entity is a tax resident in both the UAE and another country, the DTA’s tie-breaker rules apply. For individuals, these rules consider:
- The location of the permanent home.
- Where the individual’s vital interests lie.
- The habitual abode, if necessary.
- Nationality, if still unresolved.
Obtaining a Tax Residency Certificate (TRC)
A Tax Residency Certificate confirms a person’s tax residency in the UAE, which is essential for claiming tax relief under DTAs.
Application Process
You can apply for a TRC through the FTA’s EmaraTax portal. Here’s a step-by-step guide:
- Log In: Access the EmaraTax portal and create an account or log in.
- Select Service: Choose “Tax Residency Certificate” from the “other services” section.
- Fill Out Application: Complete the form, upload required documents, and specify the purpose of the TRC.
- Pay Fees: A submission fee of AED 50 is required. Additional processing fees apply depending on residency status.
- Approval and Certificate Download: The FTA typically responds within 10 business days. After approval and payment of processing fees, download the TRC.
Required Documents
- For Natural Persons: Emirates ID, resident visa, proof of residence, and financial documents.
- For Juridical Persons: Trade license, corporate tax TRN, certificate of incorporation, and proof of effective management.
How ebs Chartered Accountants can help?
ebs Chartered Accountants offers comprehensive services for obtaining a Tax Residency Certificate (TRC) in the UAE, customized to individual needs. Their expert team provides personalized eligibility analysis, document preparation, application submission, strategic tax residency advice, specialized support for Free Zone entities, and ensures compliance with UAE tax regulations. They also help clients maximize benefits from Double Taxation Agreements (DTAs). ebs chartered accountant simplifies the TRC process for both individuals and businesses, allowing clients to focus on their priorities while ensuring a smooth and compliant experience.
FAQs
What is the purpose of the new FTA guide on tax residency?
The guide clarifies the rules and requirements for obtaining a Tax Residency Certificate in the UAE.
Who qualifies as a tax resident under the new regulations?
Tax residents are individuals or entities meeting specific criteria related to physical presence or effective management in the UAE.
How can I apply for a Tax Residency Certificate?
Applications can be submitted online through the FTA’s EmaraTax portal with the necessary documents and fees.
What documents are required for the application?
Applicants need identification, proof of residency or incorporation, and additional supporting documents based on their status.