Marketers and businesses from all over the world are drawn to the United Arab Emirates (UAE), which has quickly developed into a global centre for commercial industry. Understanding tax residence in the United Arab Emirates has become crucial for both individuals and corporations since the implementation of Federal Decree-Law No. 47 of 2022 on corporate taxation. This tutorial explains every facet of tax residency in the United Arab Emirates, including how to apply for a Tax Residency Certificate (TRC) and its importance in managing tax liabilities.
Introduction to UAE Tax Residency
Groups operating within the United Arab Emirates are subject to corporation taxation under the Corporate Tax Law, which went into effect on June 1, 2023.
This involves determining if a person, whether a natural person or a juridical person, meets the requirements to be considered a Resident Person for the purposes of company taxation.
What is a Tax Residency & Tax Residency Certificate?
For tax reasons, a person’s legal relationship with a jurisdiction is established by their tax residency. Every nation, including the UAE, has its own set of regulations governing who is considered a tax resident. Depending on their status, a tax resident may have to pay taxes in the UAE on both foreign and UAE-sourced income.
The Federal Tax Authority (FTA) issues a Tax Residency Certificate to confirm that a natural or legal person is a tax resident of the United Arab Emirates.
To take advantage of the DTAs that the UAE has signed with other nations, which provide income tax reduction and assist avoid double taxation, this certificate is necessary.
Resident Person under UAE Corporate Tax Law
A resident person may be a natural person (an individual) or a juridical entity (a firm, for example). The extent of their company tax responsibilities is determined by the distinction made by the law between Resident Persons and Non-Resident Persons.
In the UAE, a legal entity is regarded as a resident person if:
Resident Juridical Persons
It is recognized, incorporated, or constituted by UAE legislation; or • It is incorporated outside of the UAE but is effectively managed and controlled there.
This covers a wide range of entities that function under UAE law, such as civil firms, trusts, foundations, Limited Liability firms (LLCs), Public and Private Joint Stock Companies, Private Shareholding Companies, and others.
Free Zone Persons
The Free Zone The same residence regulations apply to individuals, including organizations set up in the UAE’s authorized free zones. They can apply for a TRC, but under the Free Zone regime, they might be subject to specific tax laws.
Key Management and Control
Effective management of a firm is determined by important choices about operations, financial policies, and corporate strategy. Even foreign-incorporated businesses may be considered resident persons if most of these choices are made in the United Arab Emirates.
To assess this, several tests are applied:
- Board of Directors Test: Determines if the board makes decisions on its own.
- The Delegation of Authority Test: evaluates the process by which decisions are delegated.
- Shareholders Activity Test: Assesses if shareholders have a significant impact on choices outside of their typical roles.
- Location of Important Decisions: Indicates the actual or virtual location of important decisions.
Resident Natural Persons
If a natural person satisfies one of the following requirements, they are eligible to be a resident person:
- Stay of 183 Days or More: During any 12 consecutive months, the person has lived in the United Arab Emirates for 183 days or more.
- Stay of 90 Days or More with Additional Requirements: The person must be a UAE or GCC citizen, have a valid UAE resident permit, have a permanent residence or place of business in the UAE, and have been there for 90 days or longer.
Tax Residency Under UAE Domestic Law
Both natural and legal people are subject to tax residency, according to Cabinet Decision No. 85 of 2022. They can validate their tax resident status by submitting successful TRC applications to the FTA.
Tax Residency of Exempt Persons
Exempt Persons fall into four categories:
- Automatically Exempt: Although government entities are tax residents, they may nevertheless be subject to separate taxes for non-exempt purposes.
- Exempt with Notice: Companies operating in the natural resource industry are eligible for exemptions provided they inform the Ministry of Finance.
- Exempt by Cabinet Decision: Organizations approved by particular Cabinet Decisions that fulfil requirements.
- Exempt by Application: A few funds and companies that belong to exempt individuals are eligible to apply for tax exemptions.
Double Taxation Agreements (DTAs)
By defining which country has the main taxing rights for people and businesses that may be tax residents in numerous countries, the UAE’s DTAs assist prevent revenue from being taxed twice. Cabinet Decision No. 85 of 2022 and the Corporate Tax Law are among the domestic legislation that are superseded by DTAs.
Tie-Breaker Rules for Dual Tax Residency
- The DTA’s tie-breaker criteria are applicable if an individual or organization is a tax resident of both the UAE and another nation. For individuals, these rules consider:
- The location of the permanent home.
- Where the individual’s vital interests lie.
- The habitual abode, if necessary.
- Nationality, if still unresolved.
Obtaining a Tax Residency Certificate (TRC)
To claim tax relief under DTAs, a person must have a Tax Residency Certificate attesting to their tax residency in the United Arab Emirates.
Application Process
The FTA’s EmaraTax platform is where you can apply for a TRC. Here is a detailed guide:
- Log In: Go to the EmaraTax website and either login or create an account.
- Pick Service: From the list of “other services,” pick “Tax Residency Certificate.”
- Complete the application: Fill up the form, attach the necessary files, and indicate the TRC’s goal.
- Pay Fees: AED 50 is needed as a filing fee. Depending on resident status, there are additional processing fees.
- Downloading the Certificate and Approval: Usually, the FTA gets back to you in ten business days. Download the TRC following approval and processing fee payment.
Required Documents
- For natural persons: proof of residency, Emirates ID, resident visa, and financial records.
- For Juridical Persons: Certificate of Incorporation, corporate tax TRN, trade license, and evidence of efficient administration.
What assistance can ebs Chartered Accountants provide?
For acquiring a Tax Residency Certificate (TRC) in the United Arab Emirates, ebs Chartered Accountants provides comprehensive services tailored to each client’s requirements. Their knowledgeable staff guarantees adherence to UAE tax laws and offers individualized eligibility analysis, document preparation, application submission, strategic tax residency guidance, and specialist support for Free Zone firms. Additionally, they assist customers in optimizing the advantages of Double Taxation Agreements (DTAs). The TRC process is made easier for both people and companies by ebs chartered accountants, who guarantee a seamless legal experience while letting clients concentrate on their top concerns.