An overview of UAE’s new guideline on determining tax residency
Determining tax residency has become vital in the UAE, especially after the introduction of the corporate tax law. In line with this, the UAE Ministry of Finance has issued the “Ministerial Decision No. 27 of 2023” on the Implementation of Certain Provisions of Cabinet Decision No. 85 of 2022 on the Determination of Tax Residency”. The Ministerial Decision clarifies rules to certain provisions under Cabinet Decision No 85 of 2022 on the Determination of Tax Residency, bringing the UAE in line with other countries that have similar legislation.
The decision also sets out more details on when an individual’s usual place of residency and centre of personal and financial interests would be in the UAE. Tax agents in Dubai can assist you to determine the tax residency in line with the Cabinet Decision No 85 of 2022 and the new Ministerial Decision. Read ahead to understand the key takeaways from Ministerial Decision No. 27 of 2023:
Usual or Primary Place of Residence of an Individual
The Ministerial Decision states that an individual’s usual or primary place of residence is in the UAE if the UAE is the jurisdiction where the person habitually or normally resides. The place where the individual normally resides in the jurisdiction where the person spends most of the time as opposed to any other jurisdiction as part of the person’s 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 UAE.
The Centre of Financial and Personal Interests
A natural person’s centre of financial and personal interests is in the UAE if the UAE is the jurisdiction where the person’s personal and economic interests are the closest or of the greatest significance to the natural person. The Ministerial decision mentions several factors to take into account while determining the natural person’s centre of financial and personal interests. It includes:
- The place of the natural person’s occupation
- Familial and social relations
- Cultural or other activities
- Place of business
- The place from which the property of the natural person is administered
- Any other relevant facts and circumstances
Calculation of Time Period to Determine Tax Residency
As per the Ministerial decision, all days or parts of a day on which a natural person is physically present in the UAE will be counted to determine the total number of days the person is present in the UAE during a relevant consecutive 12-month period. However, the days on which the natural person has been physically present in the UAE need not be consecutive in determining whether the person has met the 183-day or 90-day threshold. Here, the day means calendar day and “month” means a calendar month. Tax agents in the UAE can provide further insights into the calculation of time periods.
If the natural person extends his presence in the UAE due to any exceptional circumstances, that day will be disregarded by the Federal Tax Authority (FTA) in determining whether the person has met the 183-day or 90-day threshold. The Decision defines an exceptional circumstance as any event or situation that prevents the person from leaving the UAE as originally planned. However, this vent or situation should occur while the person is physically present in the UAE and must be beyond the natural person’s control.
Clarification on Permanent Place of Residence
As per the decision, a natural person need not own their ‘permanent place of residence’, but such a place must be continuously available to them. The conditions of ‘being available’ will be determined based on whether the individual has the right of occupation at all times and on a regular basis with some degree of permanency and stability. It should not be just occasionally or for the purposes of a stay of short duration. Consult with tax consultants in Dubai for further information on a permanent place of residence.
Tax Agents in Dubai can Help you With Tax Residency Issues
The new guideline by the MoF is critical to determine the tax residency of individuals as it clarifies key provisions such as permanent place of residence, usual or primary place of residence, and the time period for determining tax residency. If you are struggling to accurately determine your tax residency, tax agents in Dubai such as Jitendra Chartered Accountants (JCA) can help you.
JCA has a team of highly qualified and experienced tax experts who can help you assess your current tax position, advise on the appropriate tax treatment, prepare clarification requests, or represent you in front of the FTA as registered tax agents in the UAE. We can also assist you with complying with the UAE corporate tax law, Economic Substance Regulations (ESR) Ultimate Beneficial Ownership (UBO) and Anti-Money Laundering (AML) Law.