The United Arab Emirates (UAE) has rapidly evolved as a global business hub, attracting entrepreneurs and companies from all over the world. With the introduction of the Federal Decree-Law No. 47 of 2022 on corporate taxation, understanding tax residency in the UAE has become essential for businesses and individuals alike. In this guide, we explore every aspect of tax residency in the UAE and how one can obtain a Tax Residency Certificate (TRC), along with its importance in navigating tax obligations.
Introduction to Tax Residency in the UAE
The Corporate Tax Law, which came into effect on 1 June 2023, introduces corporate taxation on businesses operating in the UAE. This includes determining whether a person, be it a juridical person or a natural person, qualifies as a Resident Person for corporate tax purposes.
What is Tax Residency & UAE Tax Residency Certificate?
Tax residency establishes the legal connection between a person and a jurisdiction for taxation purposes. Each country, including the UAE, has its own rules for determining whether a person is a tax resident. A tax resident may be subject to taxes in the UAE on both UAE-sourced and foreign income, depending on their status.
A Tax Residency Certificate issued by the Federal Tax Authority (FTA) verifies that a juridical person or natural person is considered a tax resident in the UAE. This certificate is essential for benefiting from DTAs that the UAE has signed with other countries, which helps prevent double taxation and offers tax relief on income.
Resident Person under UAE Corporate Tax Law
A Resident Person can either be a juridical person (such as a company) or a natural person (an individual). The law distinguishes between Resident Persons and Non-Resident Persons, and this classification determines the scope of their corporate tax obligations.
A juridical person is considered a Resident Person in the UAE if:
Resident Juridical Persons
- It is incorporated, formed, or recognized under UAE law, or;
- It is incorporated elsewhere but its effective management and control is exercised in the UAE.
This includes various types of entities like Limited Liability Companies (LLCs), Public and Private Joint Stock Companies, Private Shareholding Companies, civil companies, trusts, foundations, and other organizations that operate under UAE law.
Free Zone Persons
Free Zone Persons, which include entities established in designated Free Zones in the UAE, are subject to the same residency rules. They can apply for a TRC, but special tax provisions may apply to them under the Free Zone regime.
Key Management and Control
The place where key decisions regarding business strategy, financial policies, and operations are made determines where a business is effectively managed. If these decisions are predominantly made in the UAE, even a company incorporated abroad will be classified as a Resident Person for corporate tax purposes.
The focus is on who makes the key decisions (such as the board of directors or senior management) and where they are made. It’s about where critical decisions shaping the company’s future are taken, not just day-to-day operations. If these decisions happen in the UAE, the company is considered managed and controlled from the UAE.
To determine this, the following tests are applied:
- Board of Directors Test: Examines if the board is making decisions independently or simply following instructions.
- Delegation of Authority Test: Checks if management powers are delegated, and if so, where the delegated individuals make decisions.
- Shareholders Activity Test: Assesses whether shareholders are influencing major decisions, beyond their normal role.
- Where Key Management and Commercial Decisions Are Made: Focuses on the physical or virtual location of decision-making.
- Virtual Meetings Test: Evaluates where key decision-makers are located during virtual meetings and how these decisions are made.
These tests are critical in identifying who makes the key decisions and where they are made, as this defines the place of effective management and control, which directly affects the entities’ tax obligations.
Resident Natural Persons
A natural person is treated as a Resident Person if they:
- Stayed 183 or more days in the UAE within relevant 12 consecutive months, or;
- Stayed in the UAE for 90 days or more within relevant 12 consecutive months, and:
- They are a citizen of the UAE or GCC, or have a valid UAE Resident Permit, and
- They have a Permanent Place of Residence in the UAE or carry out business or employment in the UAE.
- Have their usual or primary residence and financial or personal interests are based in the UAE.
Tax Residency Under UAE Domestic Law
Under UAE law, a person is considered a Tax Resident if they meet specific criteria outlined in Cabinet Decision No. 85 of 2022. This includes both natural and juridical persons, and a successful application to the Federal Tax Authority (FTA) can lead to the issuance of a Tax Residency Certificate (TRC).
For juridical persons, incorporation in the UAE or effective management and control within the UAE qualifies them as tax residents. Natural persons, as mentioned earlier, can qualify through a combination of physical presence, residency, and business connections to the UAE.
Tax residency of Exempt Persons
The tax residency status of Exempt Persons is based on their category, with four main groups:
- Automatically Exempt Persons: This includes Government Entities. If they engage in activities outside their exempt purpose, those activities are taxed separately. Despite the exemption, these entities are considered tax residents as they are established in the UAE.
- Exempt with Notification: This applies to businesses involved in Extractive or Non-Extractive Natural Resources. If they meet certain conditions and notify the Ministry of Finance, they can claim exemption, but non-exempt activities will be taxed. These entities are also considered tax residents since they are incorporated within the UAE.
- Exempt by Cabinet Decision: Government-controlled entities and Qualifying Public Benefit Entities if listed in a Cabinet Decision and meet the required conditions fall into this category. They are recognized as tax residents.
- Exempt by Application: Public and private pension and social security funds, Qualifying Investment Funds, and UAE-incorporated entities that are wholly owned by specific Exempt Persons can apply for an exemption from tax. These entities are also considered tax residents as they are formed in the UAE.
Tax Residency Under Double Taxation Agreements (DTAs)
The UAE has entered into Double Taxation Agreements (DTAs) with various countries to prevent the double taxation of income. These agreements help determine which jurisdiction holds the primary taxing rights for individuals and companies that may be considered residents in more than one country.
DTAs take precedence over domestic laws, including the Corporate Tax Law and Cabinet Decision No. 85 of 2022.
Special cases under DTAs:
- Government Entities: These are typically exempt from corporate tax in the UAE but are still treated as tax residents under DTAs and can claim DTA benefits. If a DTA specifically defines “Government,” its definition shall prevail.
- Exempt Persons: Some entities, like government bodies or public benefit organizations, may be exempt from corporate tax but can still benefit from DTAs if they meet the DTA’s residency requirements.
Tie-breaker rule for resolving Dual Tax Residency for Juridical Person:
If a juridical person is considered tax resident in two countries, the DTA typically resolves this based on:
- Place of effective management: Where key decisions are made.
- Mutual Agreement Procedure (MAP): Countries negotiate to resolve tax residency.
- Other criteria: based on incorporation location or head office location.
Tie-Breaker Rules for Natural Persons
If a natural person qualifies as a tax resident in both the UAE and another country, tie-breaker rules in the DTA help decide which country is their primary tax residence. These rules consider:
- Where the person’s permanent home is located.
- If they have homes in both countries, where their “centre of vital interests” (closest personal and economic ties) is.
- If above two can’t be determined, where their “habitual abode” (where they spend most time) is.
- If still unresolved, the person’s nationality is considered.
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If none of these tests resolve the issue, authorities from both countries may discuss and agree on the person’s tax residency.
Exceptional circumstances for residency
Situations where a person remains in the UAE due to unforeseen events beyond their control. Such circumstances may prevent an individual from leaving the UAE as originally planned. Examples include natural disasters, national emergencies like war or civil unrest, and personal emergencies such as critical illness or injury. In such cases, the days spent in the UAE due to these exceptional circumstances are not counted towards the individual’s physical presence for tax residency purposes.
Non-Residents Under a DTA
A person who is considered a resident of another country under a DTA may still be taxed in the UAE if they have a Permanent Establishment there or if they earn income through business or professional activities. However, if they don’t have such connections to the UAE, they may be subject to a 0% Withholding Tax on UAE-sourced income.
Obtaining a Tax Residency Certificate (TRC)
A Tax Residency Certificate is a document issued by the FTA, which confirms person’s tax residency in the UAE. This certificate is crucial for person’s looking to claim tax relief under DTAs.
Period Covered by the TRC
The TRC applies to either the current or a previous tax period, covering up to 12 months. For juridical persons, the tax period is the financial year. For natural persons, it’s the Gregorian calendar year.
- Juridical Person: Can apply after 3 months into the tax period.
Natural Person: Can apply as soon as they meet the tax residency requirements.
- Government or Government Controlled Entities: Can apply from the first day of the period.
A TRC cannot be issued for future periods. Newly formed companies must complete 12 months before applying.
Steps to Apply for a TRC
You can apply for a TRC via the FTA’s EmaraTax portal. Here are the steps:
- Log in: Go to the EmaraTax portal and create or log into an account.
- Choose Service: Select “Tax Residency Certificate” from the “other services” tab.
- TRN Selection: Choose your Corporate Tax TRN, if applicable. If not, select “No TRN” (this may increase fees).
- Certificate Type: Specify if the TRC is for DTA or another purpose.
- Fill Application: Complete the form and upload the required documents.
- Pay Submission Fee: Pay AED 50 to submit the application.
- Approval: Once approved, pay the processing fee within 30 business days.
- Download Certificate: After payment, download the TRC or request a hard copy.
Required Documents
For Natural Persons:
- Presence for 183 days or more: Emirates ID and resident visa, or passport with an entry/exit report.
- Presence between 90-182 days: Emirates ID and visa, along with proof of employment, business, or residence.
- Financial and Personal Interests in UAE: Statement explaining financial ties, proof of residence, and income documents.
For Juridical Persons:
- Trade license and lease agreement
- Corporate Tax TRN
- Certificate of incorporation
- Certified copy of the Memorandum of Association,
- Proof of effective management in the UAE
- Authorized signatory details.
FTA’s Response Time
The FTA generally responds within 10 business days after the application is submitted. The response may be an approval, rejection, or request for more information. Hard copy certificates take an additional 5 business days after payment and are only delivered within the UAE.
Fees
- Submission Fee: AED 50 (non-refundable).
- Processing Fees:
- AED 500 for Registrants with a Corporate Tax TRN.
- AED 1,000 for Natural Persons without a TRN.
- AED 1,750 for Juridical Persons without a TRN.
- Hard Copy: Additional AED 250 per copy.
How RVG can help?
RVG Chartered Accountants provides end-to-end solutions for obtaining a Tax Residency Certificate (TRC) in the UAE, tailored to your unique situation. Our expert team ensures:
- Personalized eligibility analysis
- Meticulous document preparation
- Seamless TRC application submission
- Strategic advice on tax residency status
- Specialized support for Free Zone entities
- Ongoing compliance with UAE tax regulations
- Optimized benefits from Double Taxation Agreements (DTAs)
At RVG, we don’t just manage the process—we simplify it. Whether you’re an individual or a business, we ensure your path to tax residency is smooth, fast, and fully compliant, helping you focus on what matters the most. Let us take the complexity out of tax residency.
