UAE tax residency - An introduction
The United Arab Emirates (UAE) has taken a significant step towards modernizing its tax system with the recent introduction of new criteria for determining tax residency status.
The UAE Cabinet of Ministers, through Decision No. 85 of 2022, announced these changes on 9 September 2022.
The new rules apply to both individuals and legal entities for the purpose of UAE tax law or bilateral tax agreements, starting from 1 March 2023.
Ministerial Decision No. 27 of 2023, published on 1 March 2023, provided further clarity on some definitions related to tax residency for individuals, as outlined in Cabinet Decision No. 85 of 2022. These new tax residency criteria replace the previous system that relied solely on the number of days an individual spent in the UAE.
UAE tax residency - what do the new rules say?
Under the new rules, an individual will be considered a tax resident if they fulfill any one of the following conditions:
- They spend at least 183 days in the UAE in a calendar year, whether consecutive or not.
- Their place of habitual residence is in the UAE, meaning they have a permanent home in the country that they regularly use for personal or family purposes. This criterion acknowledges that many individuals may have strong ties to the UAE, even if they don't physically reside there for an extended period.
- They have an active UAE residence visa, which allows them to reside in the UAE for at least six months in a year.
These criteria, which came into effect on 1 January 2023, apply to all individuals, including UAE nationals and expatriates. This decision has significant implications for individuals who were previously classified as non-residents for tax purposes but will now be considered residents.
The introduction of the new tax residency criteria is part of the UAE's ongoing efforts to diversify its economy, broaden its tax base, and generate more revenue to support economic growth and development.
An individual might still be considered a tax resident of the UAE, even if they don't meet any of the three criteria mentioned above, if they aren't considered a tax resident in any other jurisdiction and they spend at least 90 days in the UAE in the calendar year. This means that an individual who spends less than 183 days in the UAE in a calendar year and doesn't have a permanent home or active residence visa in the UAE could still be considered a tax resident if they spend at least 90 days in the country and aren't tax residents of any other country.
This 90-day criterion is designed to capture individuals who may not be physically present in the UAE for an extended period but who have strong connections to the country, such as those who frequently travel to the UAE for business or have family ties in the country.
Never forget where you've come from...
It's crucial to note that this criterion isn't an automatic exemption from tax residency in other countries. Individuals must still consider the tax residency rules in any other countries where they may have tax obligations to determine their overall tax residency status and obligations.
UAE tax residency
In conclusion, the introduction of the new tax residency criteria is a positive move towards modernizing the UAE's tax system and aligning it with international best practices.
The decision ensures that the UAE's tax system remains competitive and attractive for individuals and businesses.
The introduction of the 90-day criterion offers more flexibility in determining tax residency in the UAE and acknowledges the diverse ways individuals may have ties to the country.
If you have any queries about the UAE tax residency or UAE tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article