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Understanding UAE's Tax Residency: Key Regulations and Implications for Individuals and Businesses

Introduction:

The UAE has established comprehensive regulations to determine tax residency for individuals and businesses operating within its borders. Three key legislative instruments guide these determinations: Cabinet Decision No. 85/2022, Ministerial Decision No. 27/2023, and Ministerial Decision No. 247/2023. This article provides an overview of these laws and their implications for tax residents in the UAE.

Cabinet Decision No. 85/2022: Defining Tax Domicile

Cabinet Decision No. 85/2022 establishes the foundational criteria for determining who is considered a tax resident in the UAE. It outlines the definitions, criteria, and conditions for considering a person as a tax resident. According to this decision:

  • A juristic person is deemed a tax resident if it is established, formed, or recognized under UAE laws or considered a tax resident by relevant tax laws.

  • A physical person is considered a tax resident if their primary residence and personal and financial interests are in the UAE, or if they are present in the UAE for specified periods (183 days or more) within a 12-month period.

  • Additionally, individuals who spend 90 days or more in the UAE within 12 months and meet certain conditions related to residence permits or nationality can also be considered tax residents.

  • The Federal Tax Authority (FTA) has the power to issue Tax Domicile Certificates and request necessary information from other government entities to enforce this decision.

    •  Ministerial Decision No. 27/2023: Implementing Tax Residency Criteria

    Ministerial Decision No. 27/2023 provides detailed guidelines for implementing the provisions of Cabinet Decision No. 85/2022. Key highlights include:

  • Determining the usual or primary place of residence based on habitual presence and stability in the UAE. It also specifies that the centre of financial and personal interests is determined by various factors, including the person's occupation, family and social relations, cultural activities, and management of properties.

  • Calculating periods of presence in the UAE, including non-consecutive days within a twelve-month period.

  • Considering exceptional circumstances that may affect a person's ability to leave the UAE.

  • Defining a permanent place of residence and the conditions under which a person is deemed to be working in the UAE.

    • Ministerial Decision No. 247/2023: Tax Residency Certificates for International Agreements

    Ministerial Decision No. 247/2023 addresses the issuance of Tax Residency Certificates for the purposes of international agreements. This decision ensures that individuals and businesses can obtain certificates to benefit from tax treaties. The process involves:

  • Applying for a Tax Residency Certificate in the form specified by the Federal Tax Authority.

  • Meeting the conditions of tax residency as per relevant international agreements.

  • Providing necessary information to the Federal Tax Authority for the issuance of the certificate.

    • Conclusion:

    The UAE's approach to determining tax residency is designed to provide clarity and certainty for individuals and businesses. By understanding the provisions of Cabinet Decision No. 85/2022, Ministerial Decision No. 27/2023, and Ministerial Decision No. 247/2023, taxpayers can better navigate their tax obligations and benefits within the UAE and under international agreements.

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