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Guide on Determination of Tax Residency in UAE

Ministerial Decision No. 27 of 2023 on Implementation of Certain Provisions of Cabinet Decision No. 85 of 2022 on Determination of Tax Residency stipulates the requirements for taxable persons to be regarded as tax residents in the UAE. Therefore, for taxable persons to effectively assess and determine their tax residency, it is advisable to seek the services of Tax Consultants in UAE

What is Tax Residency?

According to the Cabinet Decision, tax residency refers to the location at which a taxable person or business must pay tax on their international revenue. For instance, if a business is regarded as a tax resident in the UAE, it will be required to pay corporate tax in UAE on revenue earned both domestically and internationally. The Cabinet Decision specifies a number of requirements to assess whether a person or business is a tax resident in the UAE.

Determining the Place of Residence for Tax Purposes

The first criterion is the center of one's financial and personal interests as well as a regular or primary residency in the UAE. If a natural person regularly resides in the UAE, that location is taken into consideration as their usual or primary place of residence. It is also taken into consideration where a natural person spends most of their time compared to any other jurisdiction as part of their regular, more-than-transient routine. A natural person is said to have their center of economic and personal interests in the UAE if that is where those interests are the closest to them or have the most relevance. The location of the natural person's profession, relationships with family and friends, participation in cultural or other activities, site of business, the location from which the natural person's property is managed, and any other pertinent facts and circumstances are also taken into account.

Read More: Corporate Tax Accounting, Tax Accounting Services in UAE

Calculation of Time Periods

Calculating time intervals is the second requirement. A day is a calendar day, according to the Cabinet Decision, and a month is a calendar month. For people, the number of days they spend physically present in the UAE within a relevant consecutive 12-month period includes all of those days or portions of those days. When determining whether the 183-day or 90-day period has been met during the applicable consecutive 12-month period, a natural person's days of physical presence in the UAE do not have to be consecutive. The Cabinet Decision also permits the Federal Tax Authority to ignore unusual circumstances when evaluating whether the 183-day or 90-day timeframe has passed.

Permanent Place of Residence

According to the Cabinet Decision, a furnished home, flat, room, or other type of habitation that is constantly accessible to a natural person is considered a permanent place of abode. The natural person is said to have access to the permanent place of residence if they have the ongoing right to occupy it constantly, on a regular basis, with some degree of permanence and stability, and not simply sporadically or for the purposes of a brief visit. The natural person need not be the owner of the permanent abode; it may be rented or used in another way as a habitation.

Employment Condition

The first condition is whether the person has a contract with an employer who is incorporated or recognized in that state and has agreed to deliver their services to the employer under their supervision or administration in exchange for a guaranteed payment made by the employer in the state. According to this scenario, the individual has a direct contractual connection with the employer and is compensated for whatever services they provide to the state.

Furthermore, if the individual has an ongoing relationship with a party from which they get all or almost all of their compensation for their employment, that compensation is for labor that was performed in the state. This example suggests that even if there may not be a direct contractual link between the individual and the employer, they are nevertheless paid for services provided to the state. 

However, it is essential to note that a voluntary role, for which the person does not enter into a contract, does not constitute employment. Therefore, the nature of the employment can be limited or unlimited, and the work may be carried out on a full-time or part-time basis.

Choose Corporate Tax UAE 

Essentially, for taxable persons to effectively assess and determine their tax residency, it is advisable to seek the services of Tax Consultants UAE. Therefore, contact us and we shall be glad to assist you.  

Read More: How UAE Corporate Tax Regime Apply to Partnerships?

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.