The resolution clarifies certain rules set out for natural persons and legal persons residing in the Emirates. It lays down rules which determine as to when a person, whether natural or legal, may be considered as a tax resident in the UAE. The rules have been framed in consonance with internationally recognized standards and are set to come in force from March 1, 2023.
The UAE’s Ministry of Finance on Wednesday issued a decision on determining tax residency for people living in the Emirates. For consideration on tax purposes, an individual’s ‘usual place of residence’ will be in the UAE if this is where he normally or habitually resides, the ministry clarified. This was a key point in the ministerial decision no. 27 of 2023 on implementation of certain provisions of cabinet decision no. 85 of 2022 on determination of tax residency.
Juristic Person: A juristic person is a non-human legal entity that can sue and be sued. In the UAE, juristic persons include Limited Liability Companies, public joint stock corporations, foundations, and so on.
According to Article 3 of the Cabinet Decision, a legal or juristic person is a tax resident if: It is established, 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.
The resolution also specifies that all days or parts of a day in which an individual is physically present in the UAE will be counted in determining whether the 183-day or 90-day thresholds are met. In addition, according to the decision, an individual does not need to own his ‘permanent place of residence’, but such place must be continuously available to them.
“The Ministerial Decision on implementing domestic tax residency rules is important as it gives additional clarity to individuals in respect of when they are considered as tax residents under UAE taxation laws” said Younis Haji Al Khouri, Undersecretary of the Ministry of Finance.
The new Corporate Tax regime: Juristic people subject to UAE Tax Residency may be subject to the new Corporate Tax, which will be implemented on June 1, 2023, pursuant to Federal Decree Law No. 47 of 2022 on the Taxation of Companies and Enterprises. A foreign juridical person must likewise pay tax, but only under the Corporate Tax regime.
International Agreements: In the event that an international agreement, such as a tax treaty, specifies tax residency restrictions for a tax resident in the UAE, the provisions of such treaty will continue to apply, as stated in Article 6 of the Cabinet Decision. The Ministry of Finance will be in charge of deciding the form and process of issuing residency certificates.
The UAE cabinet decision No. 85 of for 2022, which came into force on Monday, provides domestic definitions and rules for determining whether an individual or a legal entity may be considered a tax resident of the UAE. Earlier, the UAE did not have a tax residency law in place; it was only based on the definitions available in international treaties entered into by the UAE on the matter. A domestic tax residency criterion will be able to provide further clarity and have explicit rules to refer for those covered by it.
