The UAE has long been a popular place for expats thanks to its tax-friendly environment. Its prime location, strong economy, and attractive tax policies draw people worldwide. However, many expats have had trouble proving their tax residency in the UAE, says Craig Ritchie, partner and financial adviser at GSB Wealth.

Often, their home countries question if they really moved and spent enough time in the UAE. This made it hard to take advantage of double taxation agreements.

In September 2022, the UAE government introduced Cabinet Decision No. 85 to update its tax system and meet international standards.

Effective from 1 March 2023, these new rules define what it means to be a tax resident in the UAE. This is a big help for individuals and businesses alike, making their tax residency status clearer and paving the way for corporate income tax in June 2023.

UAE tax residency for individuals

The new rules outline three main ways an individual can be considered a UAE tax resident:
1. Presence for 90 days or more: If a UAE national, resident, or GCC national has a permanent home or works in the UAE and spends at least 90 days there in a 12-month period. This shows a significant personal and economic presence in the country.
2. Presence for 183 days: If an individual stays in the UAE for at least 183 days in a 12-month period. This ensures that those spending a lot of time in the UAE are recognised as tax residents, showing their commitment to living and participating in the local economy.
3. Primary residence and financial interests: If an individual’s main home and financial interests are in the UAE. This considers where they live most of the time and where their financial activities are based.

While the amount of time spent in the UAE is important, it’s not the only factor. The new rules look at the whole situation to recognise those with strong ties to the UAE who are active in the local economy as tax residents.

UAE tax residency for legal entities

A legal entity is a UAE tax resident if:
• It is set up, formed, or recognised under UAE law. This means entities created under UAE law follow its tax rules.
• It is managed and controlled by the UAE. This looks at where key decisions are made and where main business activities happen, ensuring entities with significant operations in the UAE are tax residents.

The new corporate income tax rules help define a legal entity’s tax residency more clearly, matching international standards and promoting transparency.

UAE tax residence under Double Taxation Agreements (DTAs)

Double Taxation Agreements (DTAs) are deals between two countries to avoid taxing the same income twice and to boost trade and investment.

The UAE has DTAs with over 130 countries. These agreements often refer to national laws to decide tax residency, and the new rules provide more clarity for applying for DTAs and getting tax residency certificates.

DTAs generally set rules for deciding the tax residency of individuals and legal entities and how the two countries split taxation rights on certain incomes. Individuals and entities must establish their tax residency according to the DTA rules to benefit from the UAE's tax agreements.

Many DTAs use UAE’s national laws to determine whether someone is a resident for tax purposes. The new tax residency criteria clarify this and streamline the process of applying for DTAs and issuing tax residency certificates.
UAE tax residency certificates

Once tax residency is established under a DTA, individuals and entities can apply for a tax residency certificate from the UAE's Federal Tax Authority (FTA). This certificate helps expats and businesses claim DTA benefits and clarifies their tax status in the UAE.

Obtaining a tax residency certificate allows expats in the UAE and legal entities to benefit from the country’s double taxation agreements. It also clarifies the personal tax status of those who want to live and work in the UAE.

A UAE tax resident meeting any of the above conditions can apply for a tax residency certificate through the UAE's Federal Tax Authority (FTA) portal. The FTA can ask any UAE government agency for information and documents related to the applicant.

For expats, understanding these new rules is key to staying compliant and enjoying the benefits of living and working in the UAE.

The new tax residency criteria are a big step towards aligning the UAE’s tax policies with global standards, offering more certainty and stability for both individuals and businesses.

By Craig Ritchie, partner and financial adviser at GSB Wealth