Introduction
The UAE Government recently issued a Cabinet Resolution detailing guidelines for determining tax residency of natural and legal persons in the UAE. Prior to the Resolution, there was no statutory definition for UAE Tax Residency. However, in order to adapt to the international taxation regime and the dynamic global economy, the UAE drafted the legislation to stay in pace with the ever-evolving tax landscape of the country. This is in line with the new Corporate Tax regime that the UAE plans to implement from June 2023.
What is of the essence in this new Statute is, that it clearly defines the terms “Natural Person” and “Legal Person” and broadens the criteria for a Natural Person. This Legislation is one step forward to establishing clearer definitions of tax residency for corporate entities, and natural persons residing in the UAE. It helps in identifying the tax liability of entities and eases the implementation of the provisions of DTAAs. Let us take a brief look at the provisions of the Cabinet Resolution.
Analysis
The UAE Tax Residency Legislation i.e., the Cabinet Resolution No. 85 of 2022 is said to become effective from March 1, 2023.
Article 1: Definitions
This Article is the definition clause and states the definitions of the terms used in the Legislation. Amongst other, it defines the terms “Tax Resident” and “Residence Permit”.
Article 2: The Aims
The Article drafts out the aim of the Legislation: To specify the requirements and conditions for the determination of tax residency of a person under the UAE tax regime.
Article 3: Legal Person
A “Legal Person” shall be considered as a tax resident under the Legislation, if such entity was:
(a) established; or
(b) formed; or
(c) recognized
under UAE laws. However, a branch of a legal entity, which is registered under a foreign legal person, shall not be considered a ‘legal person’ under the UAE tax regime.
Article 4: Natural Person
To qualify as a “Natural Person” under the definition of the Legislation, one or more of the following conditions should be met:
- A person’s usual or principal place of residence and his primary financial and personal interest are within the UAE; the person fulfills the criteria specified by a decision of the Minister of Finance; or;
- A person can provide evidence of his physical presence within the State for a duration of 183 days or more during the relevant 12-month period; or
- A person can provide evidence of his physical presence within the State for a duration of 90 days or more, during a period of 12 months and holds the nationality of the State, has a valid residence permit in the country, or is a national of any of the Member States of the Gulf Cooperation Council (“GCC”), and fulfills either of the following:
- He has a permanent place of residence in the State or;
- He is doing a job or business in the State.
Article 5: Tax Citizen’s Certificate
A person who falls under the definitions of either a “Legal Person’, or “Natural Person” can submit an application to the Federal Tax Authority (“FTA”) and get a Tax Domicile Certificate issued in his name. The FTA shall ensure the person has met all the conditions as the Legislation and at its discretion issue the certificate.
Article 6: International Agreements
In case a person falls under any of the provisions of any international agreement, entered into by the UAE, for the determination of his tax domicile, the provisions of the agreement shall supersede the provisions of this Legislation, for the purposes of the international agreement only. The Tax Ministry is yet to specify the details regarding the issuing of certificates for the determination of tax domicile under the international agreement.
Article 7: Authority’s powers and its cooperation
The Article states that for effective implementation of the Legislation, the FTA may request all information, data, and other documents of persons from all government agencies in the State. All agencies are required to fully cooperate with the FTA with regard to any request for providing the necessary information.
Article 8: Executive Decisions
The Ministry of Finance will issue the necessary guidelines and directions for the proper implementation of the provisions of the Legislation. Since this is a fairly new law, the details are yet to be sketched out. The FTA, under this Article, is responsible to issue directives and clarifications for the smooth implementation of the Legislation.
Article 9: Publish the decision and act on it
The Legislation is set to come into effect from March 1, 2023.
Conclusion
The Cabinet Resolution is a big move by the UAE to confirm to global taxation standards. The Legislation complements the proposed new Corporate Tax regime that the UAE is all set to implement in June 2023. For the effective implementation of the Resolution, the FTA is yet to issue directives and clarifications, which we might expect to be in place before the launch of the proposed UAE Corporate Tax law.
