Global mobility – tax residency in the United Arab Emirates

In recent years, United Arab Emirates has introduced a series of measures to encourage investment and relocation into the Emirates. In this article, Ed Steabler, Mary Charles and Hannah Wailoo set out the recent changes to tax residency options in the region and what this means for globally mobile individuals.

In recognition of the importance placed on tax residency in many jurisdictions and the expansion of the corporate tax regime on 1 June 2023 (which is based on the principle of tax residency), the UAE has made recent changes to tax residency.

Background

Cabinet Resolution No. (85) of 2022 ('the Resolution') came into effect on 1 March 2023. The Resolution outlines the rules which determine whether a person is deemed to be tax resident in the UAE and introduces the ability of such persons to apply for a tax residency certificate. Until now, there was no domestic framework to establish tax residency in the UAE.  Instead, persons had to rely upon double tax conventions or agreements reached between the UAE and various countries.

The UAE is a zero-tax jurisdiction for taxation of an individual. Under the current rules, UAE tax residency does not give rise a tax liability for an individual. For globally mobile individuals who spend time in multiple countries through each year, these recent changes to the tax residency rules may help with proving and establishing their tax residency in the UAE in the context of any tax obligations in other jurisdictions.

The Resolution

As of 1 March 2023:

1.    An individual is considered tax resident in the UAE if one of the following conditions are met: 

i.    the individual's usual or principal place of residence and centre of their personal and financial interests are in the UAE;

ii.    the individual has been physically present in the UAE for at least 183 days in a consecutive period of 12 months; or 

iii.    the individual has been physically present in the UAE for at least 90 days in a consecutive period of 12 months, the individual is a UAE citizen, UAE resident (holding a valid residence permit) or holds the nationality of any other Gulf Cooperation Council country and the individual: 

a.    holds a permanent place of residence in the UAE (ie a place available to them at all times); or 

b.    carries on employment or business in the UAE.

2. a corporate entity will be considered tax resident in the UAE if one of the following conditions are met: 

i)    it was incorporated, formed or recognised in the UAE (this does not include the branch of a foreign legal entity in the UAE); or 

ii)    it is deemed tax resident pursuant to the relevant tax laws in the UAE i.e. it is effectively managed and controlled in the UAE (Article 11, clause 3 of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses). 

The Resolution provides that, when a person is determining their tax residency status for the purposes of applying a double tax convention or agreement, the rules in relation to tax residency within the relevant convention or agreement shall still apply.  

Where the conditions apply, a person can apply for a tax residency certificate, which may assist when reporting tax compliance in another jurisdiction.

What does this mean for foreign individuals living in the UAE?

• The most important change for foreign immigrants who are living in the UAE is that individuals who hold a valid residence permit for the UAE now only need to spend 90 days in a consecutive 12 month period in order to be tax resident.  
• The introduction of the 90 days criteria gives individuals greater flexibility in determining residency in the UAE. It recognises the situation for many international families who travel significantly and spend the time in multiple countries each year.
• We advise that individuals keep a careful track of their day count in the UAE and other countries to ensure that they are only tax resident in the country where they wish to establish tax residency. It is possible to be tax resident in multiple jurisdictions. It therefore remains necessary for an individual to assess their day count in all jurisdictions where they were physically present, taking into account these jurisdictions' domestic rules and any double tax treaty provisions. There are currently 139 double tax treaties with the UAE but, important to note for American citizens, there is currently no double tax treaty between the UAE and the USA.