UAE: New proposed tax residency test for natural and legal persons
Statutory requirements and conditions for natural and legal persons to determine tax residency in the UAE
Statutory requirements and conditions for natural and legal persons
The government recently issued “Cabinet Resolution No. (85) of 2022 Regarding Determining Tax Domicile” which would introduce new statutory requirements and conditions for natural and legal persons to determine tax residency in the UAE—effective from 1 March 2023.
Previously, the UAE did not have a statutory definition for “tax residency.” The Ministry of Finance, which was later replaced by the Federal Tax Authority (FTA), determined tax residency for natural and legal persons by way of issuing tax residency certificates (TRCs).
Tax residency for natural persons was determined primarily based on the number of days spent in the UAE (i.e., more than 183 days in a 12-month period) substantiated with the certain documentary requirements.
Similarly, tax residency for companies was based on the entity being incorporated for a minimum period of one year and the provision of certain documentary evidence as required by the FTA.
New tax residency test
Under the Resolution, a natural person (i.e., an individual) would be tax resident in the UAE if:
- The individual’s usual or principal place of residence is in the UAE and the center of his financial and personal interests are in the UAE or the individual meets the other conditions prescribed by the Minister
- The individual has been physically present in the UAE for a period of 183 days or more in a 12-month period
- The individual has been physically present in the UAE for a period of 90 days or more over a 12-month period and is a UAE citizen, UAE resident, or GCC national who either:
- Has a permanent place of residence in the UAE
- Carries out a job or business in the UAE
Under the Resolution, a legal person (i.e., entity or establishment) would be tax resident in the UAE if the entity:
- Was established, formed, or registered in accordance with the UAE laws (thus not including branches of foreign legal persons)
- Is considered as a tax resident under the applicable UAE tax law
More clarity on the second condition is expected once the implementing draft legislation is released.
The FTA would be responsible for issuing clarifications and directives for implementation of the new tax residency test, and for issuing TRCs in accordance with the new test. However, the current procedure and documentation requirements for obtaining the TRC may be substantially amended.
The new statutory definition broadens the criteria of UAE tax residency, for natural persons in particular. However, it should be noted that the conditions for determining tax residency under any income tax treaty that the UAE has concluded with its partner jurisdictions would still prevail.
Read a November 2022 report prepared by the KPMG member firm in the United Arab Emirates
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.