UAE TAX RESIDENCY REGULATIONS AS APPLICABLE TO AN INDIVIDUAL

     UAE TAX RESIDENCY REGULATIONS AS APPLICABLE TO AN INDIVIDUAL

UAE Government first introduced Tax Residency regulations in November 2022 vide cabinet Decision No. 85 of 2022 which laid down the conditions for determining the tax residency for an Individual and a Legal Person.

Thereinafter on 22nd February, 2023 MoF, UAE issued  Ministerial Decision No. 27 of 2023 for implementation of the Cabinet Decision no. 85 of 2022 which is effective 1st March, 2023. This Ministerial decision provides implementation details regarding the requirements for a natural person to qualify as tax resident in the UAE.

In accordance with the Article 4 of the Cabinet Resolution no. 85 of 2022, an Individual shall be considered a Tax Resident in the State where any of the following conditions are met:

1. If his usual or primary place of residence and the centre of his financial and personal interests are in the State, or he meets the conditions and criteria determined by a decision from the Minister.
2. If he has been physically present in the State for a period of (183) one hundred and eighty-three days or more, within the relevant (12) twelve consecutive months.
3. If he has been physically present in the State for a period of (90) ninety days or more, within the relevant (12) twelve consecutive months, and he is a UAE national, holds a valid Residence Permit in the State or holds the nationality of any member state of the Gulf Cooperation Council, and meets any of the following:
4. He has a Permanent Place of Residence in the State.
5. He carries on an employment or Business in the State.

The Ministerial Decision no. 27 of 2023 provides follwoing in respect of condition 1 as to Usual or Primary Place of Residence and Centre of Financial and Personal Interests in the State

1. A natural person’s usual or primary place of residence is in the State if the State is the jurisdiction where the natural person habitually or normally resides.
2. The place where the natural person habitually or normally resides 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 and that should be taken into account in the determination of whether a natural person’s usual or primary place of residence is in the State.
3. A natural person’s centre of financial and personal interests is in the State if the State is the jurisdiction where the natural person’s personal and economic interests are the closest or of the greatest significance to the natural person.
4. The place of the natural person’s occupation, familial and social relations, cultural or other activities, place of business, place from which the property of the natural person is administered and any other relevant facts and circumstances should be taken into account in the determination of whether a natural person’s centre of financial and personal interests is in the State.

In respect of condition no. 2 regarding presence of number of days in the UAE, the Ministerial decision clarifies that all days or parts of a day on which a natural person is physically present in the State count towards the total number of days he is present in the State during a relevant consecutive (12) twelve-month period. Also that the days on which the natural person has been physically present in the State do not need to be consecutive in determining whether the (183) one hundred and eighty-three day or (90) ninety-day period has been met during the relevant consecutive (12) twelve-month period.

As regards Permanent Place of Residence, the Ministerial Decision provides that a Permanent Place of Residence is a furnished house, apartment, room or any other form of dwelling, made continuously available to the natural person and not just occasionally and the same is not required to be owned and can be rented or otherwise occupied by him as a dwelling.

As regards condition of Employment for obtaining Tax Residency, the Ministerial Decision provides that an individual shall be considered as carrying on employment in the State if he is party to a contract with an employer, which is incorporated or otherwise formed or recognised in the State, under which the individual undertakes to offer a service to the employer under their administration or supervision for a promised remuneration paid by the employer in the State and If he is in a continuing relationship where all or substantially all of his income for his labour is derived from one party whereby the income received by him constitutes remuneration for his labour performed in the State. Further, the nature of the employment can be limited or unlimited and the work may be carried out on a full time or part time basis.

However, as a matter of caution, the above criteria basis on which an Individual may obtain Tax residency Certificate in the UAE may not be enough for that individual to be still recognised as a Tax Residence of UAE in the other Country and to this effect even Cabinet Decision no. 85 of 2022 provides that if any International Agreement sets out certain conditions for determining the tax residency, the provisions of that International Agreement on determining the tax residency shall apply for the purposes of this International Agreement.

Therefore, an individual while trying to reap in the advantage of Double Tax Avoidance Agreement (DTAA), will have to ascertain the conditions as may be required under that DTAA in order to qualify tax residence of UAE. For example, as per DTAA between UAE and India, it requires that an Individual must be present for at least 183 days in UAE to be considered as tax resident of UAE and therefore only if the individual meets this criteria that he can be regarded as tax resident of UAE for the purpose of DTAA between UAE and India and simply buying a house in UAE will not qualify an individual to be tax resident of UAE vis a vis India.