In March 2023, the UAE introduced new tax residency criteria to provide greater clarity for both individuals and businesses. This change, outlined in the UAE Cabinet of Ministers' Decision No. 85 of 2022 and further explained in Ministerial Decision No. 27 of 2023, aims to define clearly when a person or entity is considered a UAE Tax Resident.

Key Points for Individuals

  1. Residency Criteria:
    • A person is considered a UAE Tax Resident if they live primarily in the UAE and have their main financial and personal interests there.
    • Alternatively, being present in the UAE for 183 days or more in a consecutive 12-month period qualifies one as a tax resident.
    • If someone stays in the UAE for 90 days or more in a 12-month period and has a permanent residence, job, or business in the UAE, they also qualify as a tax resident.
  2. Tax Implications:
    • Despite meeting these residency criteria, individuals are not subject to personal income tax in the UAE, as the country does not levy such taxes on personal income. This makes the UAE an attractive destination for expatriates and international investors seeking a tax-friendly environment.

Key Points for Businesses (Juridical Persons)

  1. Residency Criteria:
    • A business is considered a UAE Tax Resident if it is incorporated, formed, or recognized in the UAE.
    • Additionally, a business can be deemed a resident if it meets the applicable legislative requirements.
  2. Corporate Tax:
    • UAE Tax Resident businesses may be liable to corporate tax under the UAE Corporate Tax Law.
    • Branches of foreign entities registered in the UAE are generally not considered separate juridical persons and thus follow the tax residency status of their parent companies.

Practical Implications

The new UAE tax residency criteria align with international standards and aid in the application of bilateral tax treaties, making it easier for individuals and businesses to obtain tax residence certificates. This clarity benefits those looking to understand their tax obligations in the UAE and ensures compliance with local and international tax laws. By clearly defining what constitutes a tax resident, the UAE helps streamline tax processes and enhance transparency.

For those navigating these new UAE tax rules, consulting with tax professionals can provide tailored advice and help in aligning with the new criteria effectively. Experts at Nephos specialize in UAE tax residency and can offer valuable insights and guidance.

Why These Changes Matter

The introduction of these new tax residency criteria is a significant step towards solidifying the UAE’s position as a major international business hub. By offering clear guidelines on tax residency, the UAE enhances its appeal to foreign investors and expatriates who seek a stable and transparent tax environment. These criteria not only simplify the tax residency determination process but also ensure that the UAE remains competitive in the global market.

For individuals and businesses alike, understanding and adapting to these new UAE tax residency criteria is crucial. Ensuring compliance with the new rules can help avoid any potential tax issues and take full advantage of the benefits provided by the UAE’s tax system.

In summary, the UAE’s tax residency criteria provide much-needed clarity and align with international standards, benefiting both individuals and businesses. By clearly defining tax residency, the UAE simplifies tax processes and enhances its attractiveness as a global business destination. To fully understand and comply with these new rules, seeking advice from tax professionals is highly recommended.

For more detailed guidance on UAE tax residency, feel free to reach out to the experts at Nephos, who can provide comprehensive support tailored to your specific needs.

By understanding and adapting to these new tax residency criteria, both individuals and businesses can ensure they remain compliant and make the most of the benefits offered by the UAE's tax system. This not only helps in mitigating tax risks but also in leveraging the opportunities provided by the UAE’s favorable tax environment.

If you require help and guidance on navigating tax residency in the UAE then get in touch with one of our team today.