New criteria for TAX residency certificate (TRC) in the UAE

New criteria for TAX residency certificate (TRC) in the UAE

Overview:

The government of UAE through its Cabinet Decision No. 85 of 2022 for determination of tax residency, issued a guideline on 2nd September 2022 to determine the tax residency for a natural and legal person.

The new rules broaden the criteria of UAE tax residency as this embarks another step taken by UAE in strengthening their position in global tax compliance and provides much needed clarity with regards to the statutory definition of UAE tax residency.

Brief:

Prior to the issuance of this decision, the UAE did not have a statutory definition for ‘tax residency’. Previously, the Federal Tax Authority (FTA) determined the tax residency for natural persons primarily based on the number of days spent in UAE (at least 180 days in a relevant year) supported with certain documentary requirements and for legal persons it must have been established for a period of at least one year supported with certain documentary requirements.

Significant changes pursuant to issuance of decision for determination of new tax residency:

For Legal Persons:

As per Article 3 of the Cabinet Resolution, a legal person (i.e., the company or entity) shall be considered as a tax resident of UAE in either of the following cases:

  • if it was incorporated, formed or recognized in accordance with the legislation in force in the State, and that does not include the branch that is registered by a foreign juridical person in the State; or
  • it is considered a Tax Resident in accordance with the Tax Law in force in the State.

For Natural Persons:

As per Article 4 of the Cabinet Resolution, a natural person (i.e., an individual) shall be considered as a tax resident of UAE, whereby any of the following conditions are satisfied:

  • if his usual or primary place of residence and the center of his financial and personal interests are in the State, or he meets the conditions and criteria determined by a decision from the Minister; or
  • if he has been physically present in the State for a period of 183 days or more, within the relevant (12) twelve consecutive months; or
  • if he has been physically present in the State for a period of 90 days or more, within the relevant (12) twelve consecutive months, and he is a UAE national, holds a valid Residence Permit in the State or holds the nationality of any member state of the Gulf Cooperation Council, and meets any of the following:
  • he has a Permanent Place of Residence in the State; or
  • he carries on an employment or Business in the State.

However, as per article 6 of the Cabinet Resolutions, if any International Agreement sets out certain conditions for determining the tax residency, the provisions of that International Agreement on determining the tax residency shall apply for the purposes of this International Agreement.

The Minister shall issue a decision specifying the form and manner of issuing certificates for determining the tax residency for the purposes of the International Agreement.

Effective date of this decision?

This decision shall be effective from 1st March 2023.

Application for TRC

The legal or natural persons whoever satisfies the aforementioned conditioned shall submit a request to apply for a TRC which shall be approved as per requirements of the FTA. The FTA may further ask for more relevant documents to satisfy itself to issue TRC as and when required.

Role of “Affiniax Partners” in TRC application?

The “Affiniax Partner” with its team of experts shall guide you (all natural and legal persons) in determining eligibility and application for TRC.

Please feel free to get in touch with our team of experts.

Written by Ms. Neha Upadhyay.

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