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According to the country’s experts, the UAE’s ministerial decision on determining tax residency will ease the lives of expatriates living in the UAE and be in their best interest.
Earlier this month, the Ministry of Finance (MoF) issued Ministerial Decision No. 27 of 2023 to implement certain provisions of Cabinet Decision No. 85 of 2022 regarding the determination of tax residency. The law related to this was enacted in September 2022, which stipulates that the number of days an individual will be considered as a tax resident after physical presence in the UAE, among other things.
“The new decision is only to avoid double taxation,” said Mostafa Hegab, legal adviser to Mansoor Lootah Advocates and Legal Consultants. “The new Cabinet decision sets out the requirements under which any natural person or legal entity can be characterized as a tax resident in the UAE. As such, a tax residency certificate will be issued which can be provided back to the place of birth to avoid double taxation .
In 2022, Cabinet Decision No. 85 was issued to come into force on March 1, 2023, to clarify the requirements and conditions for the determination of an individual or legal entity as a tax resident of the state.
Doing so brings the definition of domestic tax residency in line with internationally accepted standards, said Arun Leslie John, chief market analyst at Century Financial. “The newly introduced criteria will make it easier for individuals and entities to have absolute clarity about their tax residency status in the country,” he said. “This is important because the UAE is home to people from all over the world.”
So, what does this mean for UAE residents? Experts break it down here:
Who is a natural or legal entity tax resident?
According to Libbie Burtinshaw, Head of Operations at PRO Partner Group, domestic tax residency regulations define a UAE tax resident as a natural or legal person.
A natural person is defined as an individual who has a permanent residence in the UAE or is employed or carries on business in the UAE. It also refers to an individual;
– Stay in the UAE for 183 days or more in 12 consecutive months
– The UAE is the individual’s principal residence
– is the basis for personal finances and personal interests
For UAE nationals, holders of valid permanent resident permits or GCC nationalities – 90 or more days of physical presence within a 12-month period.
A legal person is a business/entity that is legally separate from its owner. Tax residency applies to businesses/entities established or recognized in the UAE.
How will this affect UAE residents?
Arun explained that the UAE has double taxation treaties and bilateral agreements with 137 countries. These refer to the domestic laws of the UAE and are essential in determining an individual’s tax residency status. Eligible UAE residents can therefore apply for a tax residency certificate with the Federal Tax Authority. This is a formal requirement if an individual wishes to further claim tax relief or claim benefits in a different jurisdiction under the applicable tax treaty.
Mostafa further clarified that Articles 3 and 4 of Cabinet Decision No. 85 of 2022 accurately represent legal and natural persons. UAE residents can easily apply for a Tax Residency Certificate (TRC) and use it as proof of tax payment if the above requirements are met.
How will this affect their investment decisions in the country?
Libbie explained that becoming a UAE tax resident does not subject individuals to personal income tax, but helps eligible individuals understand their tax residency status. The 9% corporate tax (CT) in the UAE will come into effect in June 2023. Compared with global corporate tax rates, the new CT policy remains very competitive. The 0% CT rate on taxable income up to Dh375,000 should support SMEs and start-ups.
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