The United Arab Emirates has recently enacted Ministerial Decision No. 247 of 2023, issued by the Minister of State for Financial Affairs on 16 October 2023. The decision specifies the criteria for obtaining a Tax Residency Certificate (TRC). A TRC is a document that confirms that a person is a resident of the UAE for tax purposes, in accordance with the relevant international agreement. A Tax Residency Certificate (TRC) in UAE can enable a person to benefit from the advantages and exemptions of the international agreement, such as lower or zero withholding tax rates on income from dividends, interest, royalties, or capital gains. To apply for a TRC in the UAE, a person must adhere to the rules and procedures specified in the decision. The UAE has entered into several international agreements, such as double taxation agreements (DTAs), to prevent or minimize the double taxation of income and assets of persons who have economic connections with more than one country. A DTA is a bilateral or multilateral treaty that determines the tax rights and duties of each country with respect to the income and assets of the residents of the other country.
What Are the Essentials to Be Entitled to A Tax Residency Certificate in UAE?
To be eligible for a UAE Tax Residency Certificate (TRC), a person must meet the conditions as per relevant international and UAE laws and decisions. Tax residency requirements in the UAE may differ depending on the type and source of income, the legal form and ownership of the person, and the length and frequency of the person's presence and activities in the UAE. Generally, a person is regarded as a resident of the UAE for tax purposes if the person:
- Permanent Residence: - If a person/entity has a permanent place of residence in the UAE, such as a house, an office, or a factory, where the person resides or operates a business regularly or continuously.
- Habitual Residence: - If a person/entity has a habitual residence in the UAE, which means that the person stays or visits the UAE often or for a long duration, regardless of the reason or nature of the stay or visit.
- Effective Management: - If a person/entity has a place of effective management in the UAE, it means that the person makes the essential management and commercial decisions for the person's business or activity in the UAE.
- Economic Interest: - If a person/entity has a substantial economic interest in the UAE, which means that the person has a considerable amount of income, assets, or activities in the UAE, or has a close relationship with a person who has such income, assets, or activities in the UAE.
Specific Rules and Exceptions for Different Categories for The Purpose tax Residency Certificate (TRC) in the UAE: -
The above-mentioned general conditions may not apply to all types of persons or income, as some international agreements or UAE laws and decisions may have specific rules or exceptions for different categories of income and persons as listed below:
- Qualifying free zone persons: - These entities/persons are incorporated in the UAE free zone and derive qualifying income from qualifying activities in the free zone, as determined by the Minister of Finance in the Ministerial Decision No. 265 of 2023.
- Government Entities and Institutions: - The entities or institutions owned or controlled by the federal or local governments of the UAE and who carry out governmental or public functions or services in the UAE or abroad.
- Charitable and Non-profit Organizations and Associations: - These organizations or associations are established or registered in the UAE for charitable, religious, educational, cultural, social, or humanitarian purposes and do not engage in any commercial or profit-making activities.
- Oil and Gas Exploration and Production Companies: - These companies are engaged in the exploration, extraction, production, or refining of oil and gas resources in the UAE or abroad and are subject to a special tax regime under the UAE laws.
- Banks and Financial Institutions: - These entities or arrangements that provide banking, financial, or insurance services in the UAE or abroad and who are regulated by the UAE Central Bank or other competent authorities.
What is the process to Apply for a Tax Residency Certificate UAE individual?
To apply for a UAE Tax Residency Certificate (TRC), a person must submit an online application through the Federal Tax Authority (FTA) website and pay the required fees.
The following are essential annexures for an application for a Tax Residency Certificate: -
- Copy of Emirates ID or Passport
- Copy of Authorized Agent identification if applicable
- A copy of the incorporated trade certificate/license, if applicable
- Title deed/Lease/ rent agreement copy regarding business or residential proof
- A letter from the applicant's bank in the UAE confirming the account details and the date of opening the account
- A letter from the applicant's auditor in the UAE confirming the income sources and amounts for the last 12 months
- A copy of the tax treaty or agreement between the UAE and the other country, if available.
- Additional details/documents if required by Federal Tax Authorities
Review by Federal Tax Authority FTA will review the application and the supporting documents and may conduct a verification or inspection visit to the applicant's place of residence or business in the UAE.
Issuance of Tax Residency Certificate: - Following the submission of a complete application, the FTA will issue the Tax Residency Certificate within 10 working days unless there are deficiencies or objections.
- Validity Of Tax Residency Certificate: -From the date of issuance, the TRC holds validity for one year and may undergo renewal for an additional year, subject to the same terms and procedures. It is strictly non-transferable and must be utilized for its designated purpose only.
A Tax Residency Certificate (TRC) is a valuable document that can help a person to avoid or reduce the double taxation of income and assets in the UAE and other countries. To obtain a TRC in the UAE, a person must meet the criteria of tax residency in the UAE and follow the rules and procedures specified by the FTA. A TRC can provide a person with significant tax benefits and exemptions under the international agreements signed by the UAE. For more details contact our Tax Consultant in Dubai.
