The UAE has issued Cabinet Resolution No. (85) of 2022, which defines the criteria for natural or legal persons as tax residents.
The new resolution will provide both legal entities and individuals transparency regarding their tax residency and will be effective from 1 March 2023.
New definitions:
Individuals or natural persons will qualify as UAE Tax Residents if they:
- Have their usual/primary residence in the UAE, and have their center of financial and personal interests in the UAE
- Were physically in the UAE for at least 183 days in a consecutive 12-month period
- Were physically in the UAE for at least 90 days in a consecutive 12-month period, and are a UAE citizen, holding a valid residence permit OR a nationality of any GCC member state (if the individual holds the nationality of a GCC member state, they must also have a permanent place of residence in the UAE or carry on employment or a business in the UAE)
What does this mean for the individual?
It does not mean that individuals will be subject to personal income tax. Typically, individuals who meet the above criteria are not subject to taxation on personal income.
Legal persons will qualify as UAE Tax Residents if:
- Incorporated in, or otherwise formed or recognized in the UAE
- It is considered a Tax Resident under applicable tax laws in the UAE
- For example, branches of a foreign or domestic legal entity are considered an extension of their head office – and not a separate entity. In this case, a UAE branch of a foreign entity would not be considered a Tax Resident.
What does this mean for legal persons?
Entities that are considered UAE Tax Residents may be subject to Corporate Tax.
UAE Corporate Tax
The UAE has introduced a Federal Corporate Tax on business profits, effective starting on or after 1 June 2023. Read our article on the new corporate tax, who qualifies, and the tax rate here.
Tax Treaties
The Resolution also sets out special cases regarding tax treaties. International agreements shall continue to apply – UAE persons who intend to apply for a tax treaty will need to refer to specific criteria set out in the treaty itself.
