Tax residency in the UAE

In 2022, the Cabinet of Ministers approved Decision No. 85, which meticulously defines the requirements for obtaining the status of "tax resident" of the UAE. The publication contains valuable information pertaining to tax residency issues for foreign investors seeking to establish a company in the UAE.

Who is a tax resident?

Tax domicile refers to the designation of a legal entity or individual as a tax resident within a specific tax authority (in this instance, the UAE) as determined by its tax code. A tax resident is subject to fulfilling tax compliance obligations and remitting taxes to the country of tax domicile.

The ascertainment of tax residency is a critical element in establishing the taxable income base and calculating an entity's ultimate tax obligations. Key factors influencing tax residency criteria typically encompass domicile, duration of physical presence within a jurisdiction, and the location of business incorporation.

How can one acquire a tax residency certificate while registering a company in the UAE?

In order to acquire a tax resident certificate in the UAE, an individual must meet one of the following criteria:

• Reside within the nation continuously for a minimum of 183 days within a span of 12 months;
• Transfer your main place of residence to this country, that is, have a residence permit in the UAE;
• Satisfy one of the other conditions from the list provided by tax legislation, such as the presence of a subsidiary in the UAE, etc.

If the interested party satisfies one of these conditions, then the following documents are required to obtain a tax residence certificate:

• Emirates ID.
• Passport.
• An existing residency permit within the UAE or a document validating your presence in the nation for over 183 days.
• A duly certified copy of the rental agreement.
• Other documents in accordance with the requirements of tax legislation.

Prior to discussing tax residency for legal companies, let's point out that investors are drawn to the Emirates for a number of primary reasons when it comes to registering and moving their businesses:

• The United Arab Emirates presents a compelling fiscal landscape for businesses, both domestic and international. Certain free trade zones further entice foreign direct investment by offering full company ownership and exemption from corporate income tax, alongside other advantageous offerings.
• Central location: the Emirates serve as a pivotal nexus in the economy, bridging the West and the East. The UAE is proximate to most major markets in Asia, Europe, and Africa, including India, China, the EU, and a host of Arab nations.
• Favorable business climate: the country boasts streamlined company formation procedures, advanced infrastructure, and additionally, the UAE stands as a global leader in providing services related to innovation and technology.
• Low risk: there is a good degree of security in the UAE. There are very few risks related to financial fraud and criminal activity. Furthermore, among the world's least bureaucratic nations is the Emirates.

For a company to become a UAE tax resident, it must meet the following requirements:

• The actual location of the company must be where its office is registered, and the office must be registered in the UAE.
• Availability of a management team in the UAE that makes strategic decisions on business management.
• The company must register with the country's Tax Authority and obtain a tax registration number.
• The company must obtain a commercial license from the Department of Economic Development.
• The company must conduct full-fledged activities in the Emirates.

If a company has offices outside the United Arab Emirates, they must only engage in ancillary activities not directly generating income. Additionally, it is crucial to consider that the UAE has numerous tax treaties with various countries, thereby enabling avoidance of double taxation.

Tax residency in the UAE: effective date of new rules

In recent years, the Emirate government has demonstrably overhauled its legislative landscape at all tiers, with the objective of attracting a greater influx of foreign direct investment into the UAE. The introduction of tax residency regulations represents another significant step in harmonizing the United Arab Emirates' regulatory environment with international best practices. These new rules were implemented on March 1, 2023.