New Criteria for Tax Residency Certificate (TRC) In the UAE

Overview:

The government of UAE, through its Cabinet Decision No. 85 of 2022 for the determination of tax residency, issued a guideline on 2^nd 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 its position in global tax compliance and provides much-needed clarity with regard 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 the issuance of the decision for the 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 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 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 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 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 1^st March 2023.

Application for Tax Residency Certificate (TRC)

The legal or natural persons who satisfy the aforementioned conditions shall submit a request to apply for a TRC, which shall be approved as per the 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 Partners,” with its team of experts, shall guide you (all natural and legal persons) in determining eligibility and application for TRC.