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How is tax residency determined for corporate tax purposes in the UAE?

Ministerial Decision No. 27 of 2023, implementing certain provisions of Cabinet Decision No. 85 of 2022, outlines the criteria for individuals and businesses to be considered tax residents in the UAE. To properly assess their tax residency in compliance with the statutory regulations, taxable persons are encouraged to seek the expertise of Tax Consultants in Dubai.

What is tax residency?

As per the aforementioned Cabinet Decision, tax residency refers to the location where a taxable individual or business is liable to pay taxes on their income. For instance, if a business is deemed a tax resident in the UAE, it must pay corporate taxes on both domestic and international earnings. The Cabinet Decision specifies several requirements to determine whether an individual or business qualifies as a tax resident in the UAE.

Factors to determine tax residency

Factors to determine tax residency in UAE include:

Center of Financial and Personal Interests

The primary criterion is the center of an individual's financial and personal interests, as well as their regular or primary residency in the UAE. If an individual resides regularly in the UAE, that location is considered their usual or primary place of residence. Additionally, factors such as where they spend most of their time compared to any other jurisdiction and where their economic and personal interests are closest to or most relevant are taken into account. Other relevant factors include their profession, family and social ties, participation in cultural activities, business location, the management of their property, and any other pertinent circumstances.

Calculation of Time Periods

The second requirement involves calculating time intervals. A day refers to a calendar day, and a month refers to a calendar month. For individuals, the total number of physically present days in the UAE during a consecutive 12-month period is considered, including partial days. The 183-day or 90-day period, depending on the specific situation, does not have to be consecutive. Unusual circumstances can also be taken into consideration by the Federal Tax Authority when assessing whether the 183-day or 90-day timeframe has been met.

Permanent Place of Residence

A furnished home, flat, room, or any other type of continuously accessible habitation for an individual is considered a permanent place of abode. The individual must have the ongoing right to occupy it constantly, on a regular basis, with some degree of permanence and stability, rather than sporadically or for brief visits. Ownership is not a requirement; the place of residence may be rented or used in another capacity as a habitation.

Read more: What expenses are deductible under UAE corporate tax?

Employment Condition

The first aspect to consider is whether the individual has a contractual agreement with an employer incorporated or recognized in the UAE, under which they provide services to the employer in exchange for a guaranteed payment. Additionally, if the individual receives nearly all their compensation from a party for services performed in the UAE, even without a direct contractual relationship, they may be considered employed for tax residency purposes. However, voluntary roles without a formal contract are not considered employment. Employment can be limited or unlimited, and work may be performed on a full-time or part-time basis.

Seek the expert services of top Tax Consultants in UAE 

Conclusively, for individuals and businesses to effectively assess and determine their tax residency in compliance with the statutory regulations, it is advisable to seek the assistance of corporate tax advisors UAE. If you require guidance in this matter, please feel free to contact us, and we will be glad to assist you.

Mostafa is a qualified Corporate Tax Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mostafa has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities. Read more