Last year, the United Arab Emirates implemented new legislation around tax residency in the country. There’s been some confusion around this, especially since the UAE is known for operating a tax framework that’s favourable to both businesses and individuals. Since the law was publicised, a lot of our clients have reached out to seek clarification, wondering if it means the UAE has changed its approach and plans to start charging taxes on personal income. Nothing could be farther from the truth. In case you’ve been wondering about the tax residency law and would like to understand what it means for you, we’ve highlighted why it’s necessary below – along with key points to note from the new law.
Why the UAE Needs Tax Residency Rules
Let’s start with a quick explanation of why it has become important for the UAE to define the conditions under which an individual can be regarded as a tax resident of the country. It is common knowledge that the UAE is home to thousands of expats across business sectors. Now, several of these people have resident status in their home countries and as a result, are required to pay taxes there. However, they shouldn’t have to do that if they have tax residency in the UAE as well. By proving their tax status in the UAE, these expats can leverage double taxation agreements the UAE has with some nations and reduce their tax burden significantly.
Basically, as a tax resident of the UAE, you may benefit from some tax benefits from your home country, as long as there’s an agreement between that nation and the UAE. Because of this, it is important that the conditions under which an individual can be considered a UAE tax resident are clear and unambiguous.
Who is a UAE Tax Resident?
To qualify as a tax resident in the UAE, you’ll need to meet some requirements. Here’s a simplified breakdown:
- The most basic criteria is to be physically present in the UAE for 183 days within the relevant 12-month duration. That means you need to be in the country for a minimum of six months and some days.
- If you were not present for 183 days, you need to be present for 90 days within the relevant 12-month duration, have a permanent residence in the UAE; and hold a valid UAE residence visa/are a national of the UAE or another nation in the Gulf Cooperation Council (GCC).
- Similarly, you are a tax resident of the UAE if you were present for 90 days within the relevant 12-month duration, are employed or run a business in the UAE, and hold a valid UAE residence visa/are a national of the UAE or another nation in the Gulf Cooperation Council (GCC).
- Finally, if you were not present for up to 90 days within the relevant 12-month duration, do not hold a valid UAE residence visa, and are not a national of the UAE or another nation in the Gulf Cooperation Council (GCC), there’s still a chance you’re a tax resident. However, you must be able to prove that the UAE is your primary place of residence and you have significant personal and financial interests in the country.
As seen above, the requirements to be a tax resident are not just tied to how many days a person spent inside the UAE. Subsequently, professionals who need to travel frequently for work have other avenues to claim tax residence in the UAE. Furthermore, a business or legal entity is considered a tax resident of the country if it is formed, incorporated, and recognised under the appropriate UAE law; or managed from within the country.
Final Note
If you need more clarification about the residency status of an individual or a corporate legal entity, we offer services around company formation and registration in the UAE. With a management team that’s dialled into the UAE business ecosystem, we can provide specialist advice and assist with regulatory enquiries. Similarly, if you’re not currently a resident of the UAE but are looking to set up a business and take advantage of the nation’s business-friendly policies, we can help you. All you need to do is click this link to schedule a one-on-one meeting. It’s free of charge!