Actualités • Membres
UAE sets out new tax residency test for individuals and legal entities effective from 1 March 2023
The UAE did not previously have a statutory definition for tax residency. Legal entities were regarded as tax residents in the UAE
By: Hervé Israel, partner
hisrael@dumon-partners.com
The UAE did not previously have a statutory definition for tax residency. Legal entities were regarded as tax residents in the UAE if they were incorporated for a minimum period of one year and could provide evidence of their activity in the UAE as required from time to time by the Federal Tax Authority.
Tax residency for individuals was determined primarily on the number of days spent in the UAE – more than 183 days in a 12-month period – this was mainly documented by the records of the airport authorities.
We have set out below the new regulations with some comments based on our understanding as to how they should be interpreted. These comments cannot be considered as valid until the FTA provides clarifications of their own.
1. Cabinet Decision No. 85/2022 On the Determination of the Tax Domicile (“CD 85/2022”):
A. Legal entity as a tax resident
Under CD 85/2022, a legal entity will be considered a tax resident in the UAE either based on the commercial law or the applicable tax law
which is to say either because:
the legal entity was incorporated, formed, or recognised in accordance with the legislation in force in the UAE, or
• it is considered a Tax Resident in accordance with the applicable tax law in force in the UAE.
Our comments:
As a result, a branch of a foreign legal entity which has no legal personality will not be recognised as a tax resident in the UAE.
This is consistent with the treatment of branches in most jurisdictions outside of the UAE. The main consequences are that branches registered by foreign legal entities in the UAE will not be eligible to the benefits of the tax treaties signed by the UAE.
