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    Expats in the UAE: understanding the new tax residence rules

    Expats in the UAE: understanding the new tax residence rules
    Joëlle de Cerjat Santa Cruz - Senior Wealth Planner - Middle East

    Joëlle de Cerjat Santa Cruz

    Senior Wealth Planner - Middle East

    The United Arab Emirates (UAE) has long enjoyed a reputation as a tax-efficient destination for both individuals and businesses. Its strategic location, flourishing economy and favourable tax policy have attracted expatriates from all over the world. However, until recently, some expats have had their new tax residence in the UAE challenged by their country of origin. It was suggested that they had not truly moved their life and were not spending enough time there. In the absence of any clear rules, it was very difficult for these expatriates to prove their tax residence in the UAE or to benefit from the advantages linked to double taxation agreements.

    In a bid to accommodate its large population of expats, modernise the tax system and align itself with international standards, the Cabinet of the UAE issued decision no. 85 in September 2022. This provides a new national definition and criteria for tax residency that align with recognised international standards in this area.

    The new rules, which came into force on 1 March 2023, bring welcome clarification for individuals and legal entities regarding their tax residency status in the UAE. They also facilitate the introduction of corporate income tax in June 2023.

     

    Tax residence in the UAE for individuals

    The new ministerial rules define three main scenarios in which an individual can be considered a tax resident of the UAE:

    1. The physical presence for 90 days or more in a consecutive 12-month period of a UAE national, UAE resident or nationals of any Gulf Cooperation Council (GCC) member, where the individual:

    i. has a permanent place of residence in the UAE, or
    ii. is in employment or runs a business in the UAE.

    2. A physical presence in the UAE for a period of 183 days in a consecutive 12-month period.

    3. An individual that has their primary residence and financial interests in the UAE.


    We see that although the number of days spent in the UAE remains important, it is no longer the sole criterion. The determination of tax residence is now based on a full evaluation of an individual’s situation, with the aim of ensuring that people who have substantial links to the UAE and who engage in economic activities in the country are recognised as tax residents.

    We see that although the number of days spent in the UAE remains important, it is no longer the sole criterion

    Read also: Five questions for expats moving to or living in the UAE | Lombard Odier

     

    Tax residence in the UAE for legal entities

    A legal entity will be considered a tax resident of the UAE if either of the following applies:

    • The legal entity is incorporated, formed or recognised in accordance with the applicable UAE legislation.
    • The legal entity is considered a UAE tax resident in accordance with the new tax law provisions in force in the UAE.

    Under the new corporate income tax act, a legal entity is considered a UAE tax resident if it was incorporated, formed or recognised under the applicable law in the UAE, or is effectively managed and controlled from the UAE.

    Tax residence under double taxation agreements (DTAs)

    DTAs are bilateral agreements entered into by two countries to avoid the double taxation of income and to promote cross-border trade and investment. These agreements generally provide rules for determining the tax residence of individuals and legal entities, as well as rules concerning how the two countries allocate taxation rights on certain forms of income.

    It should be noted that the UAE has signed DTAs with more than 130 countries.

    The new tax residence criteria are important for those wishing to benefit from the advantages afforded by the UAE’s tax agreements. To do so, individuals and legal entities must first establish their tax residency status in accordance with the rules set out in the applicable DTA.

    Many DTAs between the UAE and other countries refer to the national legislation of the UAE to determine whether someone is resident in the country for the purposes of the DTA. The introduction of new national tax residency criteria brings greater clarity and will rationalise the application of DTAs and the provision of tax residency certificates by the UAE for specific DTAs.

    It should be noted that the UAE has signed DTAs with more than 130 countries

    Tax residency certificates

    Once tax residency has been established for the purposes of a DTA, the person or entity can apply for a tax residency certificate from the relevant tax authority. This can be used to prove their tax residency status and to claim DTA benefits in the other country.

    Obtaining a tax residency certificate enables individuals and legal entities to benefit from the double taxation agreements entered into with the UAE, and to clarify the personal tax status of those wishing to live and work in the UAE.

    A UAE tax resident who satisfies any of the above conditions can apply for a tax residency certificate via the UAE’s Federal Tax Authority (FTA) portal. The FTA has the right to ask any UAE government agency for information and documentation relating to the applicant.

    Obtaining a tax residency certificate enables individuals and legal entities to benefit from the double taxation agreements entered into with the UAE.

    Lombard Odier does not provide tax advice. Therefore, you must verify the above and all other information provided in the marketing communication or otherwise review it with your external tax advisors.

    Important information

    This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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