UAE Tax Residency Certificate Rules: A Latest Guide

The Federal Tax Authority (FTA) issued the Tax Procedures Guide TPGTR1 on Tax Residency Certificates (TRC) and tax residency in the UAE. This Guide is designed to assist individuals and businesses to effectively determine taxability and provides a comprehensive explanation of tax residency rules in the UAE. 

Key Aspects of Tax Residency in the UAE

The Guide outlines the following tax residency classifications:

1. Resident Persons under the corporate tax law
2. Tax Residents under UAE domestic aw
3. Tax Residents under Double Tax Agreements

Who Qualifies as a Resident Person Under the UAE Corporate Tax Law (CTL)?

Juridical Persons (Businesses & Entities)

On satisfaction of given below conditions, any entity is deemed to be a Resident Person for the purposes of UAE corporate tax if:

Criteria	Description
Registered in the UAE	Irrespective of the place of management and control.
Registered outside the UAE	The effective control and management within the UAE jurisdiction.

What Are the Key Clarifications from the Guide?

Subsidiaries of Resident Legal Entities as well as foreign companies operating in the UAE are treated as branches of the head office and not as separate legal entities.

Companies operating within Free Zones:

• The branch operating in the Free Zone is treated as the head office.
• The foreign parent is treated as a Non-Resident Person for corporate taxation as well as a foreign branch.

In accordance with Article 4 of the Corporate Tax Law, Exempt Persons are not classified as Resident Persons until they conduct businesses or business activities that are non-exempt.

How is the Place of Effective Management and Control Established?

The tax residency of overseas companies in the UAE is determined based on whether or not the company’s place of effective management and control is within the borders of the UAE. The Guide contains the description of two significant tests of focus. These tests should be centered on the important decision participants at the entity-controlled test.

Who Makes the Key Decisions (Persons Test)

Decision Making Authority	Key Considerations
Board of Directors	Do members on the board make decisions or pass them to a vote, where previously resolved ideas are executed? Are the directors appropriately qualified?
Shareholders	If shareholders are exceptionally more powerful than merely providing guidance to the policy-making, they are likely to be dominating to an extent where they are regarded as having effective control.
Delegated Persons	The place where decisions are made is significant for senior management or executive committees that have received the authority to make decisions.

Where Are Key Decisions Made? (Location Test)

• Board Meeting Locations: The places where meetings are held are relevant.
• Virtual Decision-Making: For a virtual meeting, the location where the decision is made is important.
• Shareholders and Delegated Authority: The place from where shareholders or upper management make decisions determines tax residency.

How Do Double Taxation Agreements (DTAs) Impact Tax Residency?

Each DTA has its specific rules, but, legal persons are considered tax residents if they meet one of the following conditions:

• Liable to tax in the UAE
• Incorporated in the UAE
• Effective management, or substantial economic presence in the UAE.

A legal entity which satisfies any of these conditions in a DTA is allowed to claim the Tax Residency Certificate in the UAE to enjoy the benefits of the tax treaty.

What Are the Special Considerations for DTAs?

• Entities of the Government and Government Controlled Entities, are usually regarded as tax residents under the DTA.
• If a definition is provided in a DTA, that definition prevails over the classification provided by the UAE.

What Are Some Rules for Tax Residency Individuals in the UAE?

This aligns to the individual tax residency as issued by the Cabinet of Ministers of UAE in its Decision No. 85 of 2022, which became effective on March 1, 2023. On satisfaction of specific criteria, a natural person is deemed as a UAE as stated below: - 

Presence Test:

• Physical Presence Test: A person is physically present in the United Arab Emirates for one hundred eighty-three days or more in total over a period of 12 months.
• Alternative Physical Presence Test:
  A person is present in the United Arab Emirates for 90 days in a 12-month period and:
  • The person is either a National of the United Arab Emirates or a holder of its residency, or a Citizen of any other Member State of the Gulf Cooperation Council.; and
  • Whether individual:
    • has a permanent UAE domicile, or
    • is employed or conducts a business in the United Arab Emirates.

Center of Residence and Vital Interests:

• The given individual’s primary or habitual home is in the United Arab Emirates and the given individual’s focal point of economic and social activities is also in the United Arab Emirates.
• Even with the provision of certain criteria, it does not mitigate the absence of taxation on employment within the country since there is no personal income tax levied in the UAE.

How Can One Apply for a UAE Tax Residency Certificate?

A Tax Residency Certificate issued by the UAE Federal Tax Authority confirming the status of tax residency of an individual or entity within UAE jurisdiction. Claiming a TRC is crucial for those who wish to benefit from tax exemptions under the Double Taxation Agreements (DTA’s) for eligible jurisdictions.

Qualifications for a TRC:

Category	Eligibility Criteria
Individuals	Applicants must meet the physical presence requirement (183/90-day rule) and must provide supporting documents for residency and employment in the UAE.
Businesses	The applicant must be incorporated in the UAE or have a place of effective management and control in the UAE.
Free Zone Companies	Can apply given that the UAE conditions for tax residency are satisfied, but are subject to jurisdiction limitations.

Supporting Documents Needed to Apply for Tax Residency Certificate

For Individuals:

• 6 Months UAE Bank Statement
• Utility Bill
• Any ownership of the house document
• Salary Certificate or Business Registration Documents (if applicable)
• Copy of Passport, Visa and Emirates ID
• Proof of being physically present within UAE like an Immigration Entry/Exit Report

For Businesses:

• Ownership or Lease Agreement for the UAE Address
• 6 Months UAE Bank Statement
• Trade License
• Memorandum of Association (MOA)
• Consolidated and Reviewed Financial Accounts of the Entity by a UAE Auditing Company
• Organization Structure Chart showing Major Management Posts in the Company

UAE Tax Residency Certificate

The steps to follow in getting a TRC (Tax Relief Certificate) in the UAE include:

• Application Submission: Application can be filed through the EmaraTax portal
• Document Uploading: Ensure to upload all relevant documents to avoid a longer waiting period.
• Review of the Application: The approved FTA will manually check your claim and may need more details about it if required.
• Processing Payment: After your application gets accepted, you will have to pay the process payment fee.
• Issuance of the Certificate: Once done, download your TRC.
• For a Printed Copy AED 250 are fee to be deposited

Businesses are advised to seek the expert services of premier Tax Consultants in UAE to effectively determine taxability and ensure compliance with the corporate tax law. Contact us today and we shall be glad to assist you.