UAE issues additional guidance on determination of tax residency for individuals

Executive summary

On 22 February 2023, the UAE MoF issued Ministerial Decision No.27 of 2023 on Implementation of Certain Provisions of Cabinet Decision No. 85 of 2022 on Determination of Tax Residency. This new decision provides additional details regarding the requirements for a natural person to qualify as tax resident in the UAE.

Detailed discussion

Background

In November 2022, the UAE Government issued Cabinet Resolution No. 85 (pdf) of 2022 which introduced provisions to determine tax residency for natural and legal persons. For background, see EY’s Global Tax alert, UAE issues resolution on tax residency, dated 16 November 2022.

According to Cabinet Resolution No. 85, effective 1 March 2023, individuals can be considered tax residents in the UAE if they meet any one of the following conditions:

• Their principal place of residence and the center of their financial and personal interests are in the UAE.

• The individual has been physically present in the UAE for 90 days or more over a consecutive 12-month period and is a UAE citizen, UAE resident, or Gulf Cooperation Council (GCC) national who either has a permanent place of residence in the UAE or performs a job or business in the UAE.

• The individual has been physically present in the UAE for 183 days or more in a consecutive 12-month period.

If a tax treaty outlines specific conditions to be eligible for tax residency, Cabinet Resolution No. (85) of 2022 specifies that the provisions of the tax treaty shall be applicable for purposes of tax treaty application.

Additional details regarding the conditions in determining tax residency for natural persons

Ministerial Decision No. 27 of 2023 provides additional clarifications on each of the conditions mentioned above.

An individual whose principal place of residence and the center of financial and personal interests is in the UAE (irrespective of the number of days spent in the UAE).

For the above condition, all of the following requirements must be met:

• The principal place of residence must be in the UAE. The place where the individual habitually resides or normally resides. This is the jurisdiction where he spends most of his time when compared to any other jurisdiction as part of his settled routine in a way that is more than transient.

• Center of financial and personal interests must be in the UAE. UAE shall be the state where the personal and economic interests are the closest or of the greatest significance to the individual. Occupation, familial and social relations, cultural or other activities, place of business, place from which the property of the individual is administered, and any other relevant facts and circumstances should be considered.

An individual who has been physically present in the UAE for 90 days or more over a consecutive 12-month period; and the individual is a UAE citizen, UAE resident, or Gulf Cooperation Council (GCC) national; and the individual either has a permanent place of residence in the UAE or performs a job or business in the UAE.

For this condition, the requirements are:

• Individuals have to present an entry and exit report from the Federal Authority of Identity and Citizenship or a local competent Government entity confirming number of days spent in the UAE.

AND one of the following:

• Proof of permanent source of income or salary certificate or other proof of carrying on a business in the UAE,

OR

• Proof of permanent place of residence such as title deed or certified tenancy contract (EJARI) or other long-term rental contract. Utility bills will also be helpful.

Individuals who spend 183 days or more in the UAE

• Individuals have to present entry and exit report from the Federal Authority of Identity and Citizenship or a local competent Government entity.

Additional clarifications

The new Ministerial Decision also clarifies that all days or parts of a day in which an individual is physically present in the UAE will be counted as UAE days.

The days do not need to be consecutive in determining the 183-day or 90-day period. However, any day that was spent in the UAE due to exceptional circumstances may be disregarded by the authorities. An exceptional circumstance is an event beyond the individual’s control occurring while he is already in the UAE, which he could not have predicted, and which prevents him from leaving the UAE as initially planned.                                 

Application process for Tax Residency Certificates (TRC)

Individuals can submit their tax residency certificate applications online on the Federal Tax Authority portal.

When applying for a TRC for domestic tax purposes, individuals will need to select one of the three options relating to the conditions outlined above and upload the corresponding required documents.

For each TRC application, the fee is currently AED50 for submission plus one of the following fees:

• AED500 for all tax registrants

• AED1,000 for non-tax registrant individuals

Implications

Individuals and businesses should review the conditions for determining UAE tax residency for individuals to establish whether any of the conditions apply to them or to their employees, respectively. Where applicable, it should be verified whether such individuals can meet the relevant requirements under the applicable condition.

Attention should also be given to the days when an individual is considered as physically present in the UAE, particularly when arriving in or departing from the UAE.

For additional information with respect to this Alert, please contact the following:

EY Consulting LLC, Dubai

• Roman Gusev, People Advisory Services

• Xavier Delaunay People Advisory Services

• Neha Shah, People Advisory Services

• Christine Saliba, People Advisory Services

EY LLP (United States), Middle East Tax Desk, New York

• Asmaa Ali

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.