New definitions of tax resident in UAE
The UAE Federal Tax Authority (FTA) has published Ministerial Decision No. 27 of 2023 for the implementation of certain provisions of Cabinet Decision No. 85 of 2022 on the determination of tax residency. As previously reported, the primary tax residency rules provided by Cabinet Decision No. 85 are as follows:
- A juridical person (legal entity) shall be considered a tax resident in the UAE in either of the following cases:
- it was incorporated, formed, or recognized in accordance with the legislation in force in the UAE, excluding a branch that is registered by a foreign juridical person in the UAE; or
- it is considered a tax resident in accordance with the tax law in force in the UAE (note below).
- A natural person shall be considered a tax resident in the UAE where any of the following conditions are met:
- their usual or primary place of residence and the center of their financial and personal interests are in the UAE, or they meet the conditions and criteria determined by a decision from the Minister;
- they have been physically present in the UAE for a period of 183 days or more, within the relevant 12 consecutive months; or
- they have been physically present in the UAE for a period of 90 days or more, within the relevant 12 twelve consecutive months, and they are a UAE national, hold a valid residence permit in the UAE, or hold the nationality of any member state of the Gulf Cooperation Council, and meet any of the following:
- they have a permanent place of residence in the UAE; or
- they carry on an employment or business in the UAE.
Note that further provisions regarding tax residency are provided as part of the new Corporate Tax regime introduced by Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses ( previous coverage). For the purpose of the Corporate Tax regime, a resident person is any of the following persons:
- A juridical person that is incorporated or otherwise established or recognized under the applicable legislation of the UAE, including a free zone person;
- A juridical person that is incorporated or otherwise established or recognized under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the UAE;
- A natural person who conducts a business or business activity in the UAE; or
- Any other person as may be determined in a decision issued by the Cabinet.
Ministerial Decision No. 27 provides further details on the determination of tax residency for natural persons. This includes details on the following:
Usual or Primary Place of Residence and Centre of Financial and Personal Interests in the UAE
- A natural person’s usual or primary place of residence is in the UAE if the UAE is the jurisdiction where the natural person habitually or normally resides.
- The place where the natural person habitually or normally resides is the jurisdiction where they spend most of their time when compared to any other jurisdiction as part of their settled routine in a way that is more than transient and that should be taken into account in the determination of whether a natural person’s usual or primary place of residence is in the UAE.
- A natural person’s center of financial and personal interests is in the UAE if the UAE is the jurisdiction where the natural person’s personal and economic interests are the closest or of the greatest significance to the natural person.
- The place of the natural person’s occupation, familial and social relations, cultural or other activities, place of business, place from which the property of the natural person is administered, and any other relevant facts and circumstances should be taken into account in the determination of whether a natural person’s center of financial and personal interests is in the UAE.
Calculation of Time Periods
- The term “day” means a calendar day and the term “month” means a calendar month.
- All days or parts of a day during which a natural person is physically present in the UAE count towards the total number of days they are present in the UAE during a relevant consecutive 12-month period.
- The days on which the natural person has been physically present in the UAE do not need to be consecutive in determining whether the 183-day or 90-day period has been met during the relevant consecutive 12-month period.
- Any day that the natural person’s presence in the UAE was due to exceptional circumstances may be disregarded by the authority in determining whether the 183-day or 90-day period has been met during the relevant consecutive 12-month period.
- An exceptional circumstance is an event or situation beyond the natural person’s control, occurring while they are already in the UAE, which they could not reasonably have predicted or prevented, and which prevents them from leaving the UAE as originally planned.
Permanent Place of Residence
- A permanent place of residence is a furnished house, apartment, room, or any other form of dwelling, made continuously available to the natural person.
- The permanent place of residence shall be considered as being available to the natural person where the natural person has the continuous right of occupation therein at all times and on a regular basis with some degree of permanency and stability and not just occasionally or for the purposes of a short-duration stay.
- A permanent place of residence is not required to be owned by the natural person but can be rented or otherwise occupied by them as a dwelling.
- A natural person shall be considered as carrying on employment in the UAE in either of the following two cases:
- if they are a party to a contract with an employer, which is incorporated or otherwise formed or recognized in the UAE, under which the natural person undertakes to offer a service to the employer under their administration or supervision for a promised remuneration paid by the employer in the UAE; or
- if they are in a continuing relationship where all or substantially all of their income for their labor is derived from one party whereby the income received by them constitutes remuneration for their labor performed in the UAE.
- 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.
- A voluntary role for which the natural person does not enter into a contract does not constitute employment.
Both Ministerial Decision No. 27 and Cabinet Decision No. 85 are effective from 1 March 2023.