Finance Ministry clarifies UAE tax residency rules

Ministerial decision brings the Emirates in line with other countries that have similar legislation

The Ministry of Finance building in Abu Dhabi. The UAE has double taxation agreements with 137 countries. Khushnum Bhandari / The National

The UAE Ministry of Finance has clarified rules to certain provisions under Cabinet Decision No 85 of 2022 on the Determination of Tax Residency, bringing the Emirates in line with other countries that have similar legislation.

The rules, which came into effect on Wednesday, are designed to clarify the domestic definitions for determining whether a person or a legal entity may be considered a tax resident of the UAE.

“The ministerial decision on implementing domestic tax residency rules is important as it gives additional clarity to individuals in respect of when they are considered as tax residents under UAE taxation laws,” Younis Haji Al Khouri, Undersecretary in the Ministry of Finance, said on Wednesday.

In 2020, it was announced that tax residency and commercial activities certificates would be issued through the Federal Tax Authority of the UAE.

Tax residency certificates are issued to eligible government entities, companies and people looking to benefit from double taxation agreements signed between the UAE and other countries.

Double taxation agreements allocate taxing rights and ensure people and businesses are only taxed once.

They clarify how certain types of income — such as dividends, property income and pensions — should be taxed, and lay out rules on non-discrimination to prevent different treatment based on factors such as nationality or residency.

The UAE has double taxation treaties with 137 countries, including the UK, India, Egypt, Germany and Japan.

Employees in the UAE do not pay income tax on their salaries, property or other investments.

However, in January last year, the UAE introduced a federal corporate tax with a standard statutory rate of 9 per cent, which will come into effect for businesses whose financial year starts on or after June 1 this year.

Watch: UAE to introduce federal corporate tax on business profits

Under the latest ministerial decision, a person’s “usual place of residence” will be in the UAE if this is where they normally reside, the Ministry of Finance said.

A person’s “centre of financial and personal interests” will be in the UAE if this is where their work, personal, economic relationships or other connections are the strongest, it said.

It also specified that all days or parts of a day in which a person is physically present in the UAE will be counted in determining whether the 183-day or 90-day thresholds are met.

In addition, a person does not need to own a “permanent place of residence”, but it must be continuously available to them.

“The declaration makes it clear that a person will be tax resident in the UAE if they spend a certain number of days here in a period of a year,” said Keren Bobker, financial adviser and senior partner at Holborn assets.

“When considering cross-border tax liabilities, this brings some clarification and means that those of us who advise on these matters can be clearer in terms of advice provided.

“I provide advice to many people leaving the UAE to return to the UK and have been waiting for this to come into effect as it is highly relevant in terms of tax liabilities.”