Cabinet Resolution on tax residency issued has been saved
Cabinet Resolution on tax residency issued
9 November 2022 - The United Arab Emirates (UAE) has issued the Cabinet Resolution No. (85) of 2022 (Resolution), which sets out the criteria for determining the tax domicile of legal and natural persons in the UAE, as summarized below:
- Article 3 outlines that a legal person will be considered a tax resident if it is incorporated or formed in the UAE. This is in line with the previous/existing practice applied by the Federal Tax Authority (FTA).
- Article 3 also confirms that branches of foreign entities cannot be considered a tax resident in the UAE. Again, this is in line with previous/existing practice applied by the FTA.
- Article 3 further states that a legal person can be considered a tax resident under the tax law of the country. We note that under the UAE Corporate Tax Public Consultation Document, foreign entities can be considered tax residents if they are effectively managed and controlled in the UAE. The respective provision seems to cater for this situation.
- Article 4 sets out that a natural person will be considered a tax resident if:
- The primary place of residence and the center of financial and personal interests are in the UAE (or meets further conditions to be specified); or
- There is a physical presence in the UAE for at least (183) days within (12) consecutive months; or
- There is a physical present in the UAE for at least (90) days and has a permanent place of residence or is employed in the country.
- The Resolution also specifies that the definition of tax residency provided in any applicable International tax treaty shall prevail over the definition provided in the UAE domestic law. This is in line with previous/existing practice applied by the FTA.
- It is also confirmed that the FTA will continue issuing Tax Residency Certificates (TRCs). It remains to be seen whether the TRC application/documents required will change going forward.
- The Resolution will come into effect as of 01 March 2023.
- For the first time, the key tax residency principles/conditions are now clearly set out and codified. Whilst they are broadly in line with the existing practice, there are the following major changes:
- Foreign legal entities should be able to obtain a TRC if their place of effective management is in the UAE under the future Corporate Income tax law.
- Natural persons can now claim a TRC if the UAE is their primary place of residency. We would expect global best practices to apply such as the Model Commentary issued by the Organisation for Economic Co-operation and Development (OECD). This is a very welcome change and will ensure consistency with practices applied in other countries and thus create a level playing field.