Tax Residency October Guide Update – Natural Persons (Individuals)
Private Clients | Tax Alert
On October 18, 2024, the Federal Tax Authority (FTA) released the Tax Procedures Guide (TPGTR1), which lays out key information about tax residency, how to get a Tax Residency Certificate (TRC) and Corporate Taxation for Natural Persons.
The guide provides the definition of tax residency, which is also relevant for Double Taxation Agreement (DTA) purposes, and explains the process of obtaining a residency certificate. It is based on Article 4(1) of Cabinet Decision No. 85 of 2022, along with Ministerial Decisions No. 27 and 247 from 2023.
Below, we highlight the main takeaways regarding new tax procedures for individuals. For more details, feel free to reach out to our team.
The guide provides the definition of tax residency, which is also relevant for Double Taxation Agreement (DTA) purposes, and explains the process of obtaining a residency certificate. It is based on Article 4(1) of Cabinet Decision No. 85 of 2022, along with Ministerial Decisions No. 27 and 247 from 2023.
Below, we highlight the main takeaways regarding new tax procedures for individuals. For more details, feel free to reach out to our team.
Who Qualifies as a UAE Tax Resident?
An individual will be considered a tax resident in the UAE for local tax purposes if they meet at least one of these three conditions under Article 4 of Cabinet Decision No. 85 of 2022:
1. 183 days or more of physical presence in the UAE within any 12-month period (arrival and departure days count as full days).
2. 90 days or more of physical presence in the UAE within the same period, plus both of these:
The guide explains, with examples, that the residency period is calculated based on the Gregorian calendar (Jan 1 – Dec 31). In certain emergencies (like natural disasters or personal issues), some days may not count towards the 183-day rule. This provision is reminiscent of the Covid pandemic situation or similar disruptions affecting travel.
An individual will be considered a tax resident in the UAE for local tax purposes if they meet at least one of these three conditions under Article 4 of Cabinet Decision No. 85 of 2022:
1. 183 days or more of physical presence in the UAE within any 12-month period (arrival and departure days count as full days).
2. 90 days or more of physical presence in the UAE within the same period, plus both of these:
- The individual has the legal right to live in the UAE (as a GCC national or UAE residence permit holder)
- They either have a permanent residence in the UAE or are employed in the UAE or have a business in the country.
The guide explains, with examples, that the residency period is calculated based on the Gregorian calendar (Jan 1 – Dec 31). In certain emergencies (like natural disasters or personal issues), some days may not count towards the 183-day rule. This provision is reminiscent of the Covid pandemic situation or similar disruptions affecting travel.
What is a Permanent Place of Residence?
A permanent residence refers to a furnished home, apartment, or any other living space continuously available to a person. It can be owned, rented, or otherwise occupied, as long as it is available on a stable basis. Temporary stays for business, leisure, or education purposes do not qualify.
A permanent residence refers to a furnished home, apartment, or any other living space continuously available to a person. It can be owned, rented, or otherwise occupied, as long as it is available on a stable basis. Temporary stays for business, leisure, or education purposes do not qualify.
Employment and Business in the UAE
An individual is considered to be employed in the UAE if:
As for business, this includes any regular economic activity in the UAE, whether it is industrial, commercial, or professional (like consulting or legal work). Business activities can be short-term and do not have to generate a profit.
An individual is considered to be employed in the UAE if:
- They are under contract with a UAE-based employer and receive remuneration
- The majority of their income comes from work performed in the UAE
- They are engaged in non-voluntary work.
As for business, this includes any regular economic activity in the UAE, whether it is industrial, commercial, or professional (like consulting or legal work). Business activities can be short-term and do not have to generate a profit.
3. Residency Based on Vital Interests
The third test to determine UAE tax residency is by looking at where a person's primary place of residence is and where their financial and personal interests are centered. This means considering where they live most of the time, work, run a business, or manage their finances and investments. A "primary residence" refers to the country where they spend the majority of their time, and their "center of financial and personal interests" is where their job, business, social connections, and investments are primarily located.
The third test to determine UAE tax residency is by looking at where a person's primary place of residence is and where their financial and personal interests are centered. This means considering where they live most of the time, work, run a business, or manage their finances and investments. A "primary residence" refers to the country where they spend the majority of their time, and their "center of financial and personal interests" is where their job, business, social connections, and investments are primarily located.
The Guide also provides with the illustrative test of determination UAE Tax residency.
Tax Residency Under Double Taxation Agreements (DTA)
The provisions of the applicable DTA take precedence over the domestic law and regulations.
For DTA purposes, a person is usually considered a UAE tax resident if they meet the conditions set by the relevant DTA. The UAE has over 140 DTAs with its trade partners, each with its own residency rules. Please refer to the list of signed DTA on the official site of the UAE Ministry of Finance. Although the current DTA with Russia does not address the issue of taxation of individuals and their residency test, there is an expectation that the new DTA may cover these points.
If a person qualifies as a tax resident in both the UAE and another country under a DTA, the tie-breaker rules are used to decide residency. These rules consider:
If none of these clarify residency, the authorities from both countries may consult to determine the person’s tax status.
The provisions of the applicable DTA take precedence over the domestic law and regulations.
For DTA purposes, a person is usually considered a UAE tax resident if they meet the conditions set by the relevant DTA. The UAE has over 140 DTAs with its trade partners, each with its own residency rules. Please refer to the list of signed DTA on the official site of the UAE Ministry of Finance. Although the current DTA with Russia does not address the issue of taxation of individuals and their residency test, there is an expectation that the new DTA may cover these points.
If a person qualifies as a tax resident in both the UAE and another country under a DTA, the tie-breaker rules are used to decide residency. These rules consider:
- Where is the person’s permanent home?
- If they have homes in both countries, where are their vital interests centered?
- If neither applies, where is their habitual residence?
- If still unresolved, what is their nationality?
If none of these clarify residency, the authorities from both countries may consult to determine the person’s tax status.
Being recognized as a tax resident under both local law and a DTA can help prevent double taxation and allow to apply foreign tax credits in a foreign jurisdiction or apply reduced tax rates for foreign source income.
It is crucial to assess each situation individually and plan your tax residency in advance.
How to Get a Tax Residency Certificate (TRC)
A TRC confirms a person’s status as a UAE tax resident and is used for DTA purposes or other internal tax needs.
Applications are made online through the FTA, and processing should take around 10 business days once all documents are received. The service is chargeable. Through this service, the FTA issues: TRCs to enable applicants to take advantage of DTA or TRCs for domestic purposes.
There are two types of certificates:
The Guide also illustrates the sample of tax resident certificate to be issued by FTA.
There are two types of certificates:
- Hard copy
- E-certificate
The Guide also illustrates the sample of tax resident certificate to be issued by FTA.
The certificate is valid for a tax period based on the Gregorian calendar year, and it cannot cover future periods or exceed 12 months.
Required Documents
The FTA will only issue a TRC if satisfied that the applicant meets the UAE residency criteria. They may request additional documents or evidence before issuing the certificate. The guide includes a list of typical required documents (see Sections 7.5.1–7.5.2), preparing some documents may take extra time. For example, obtaining an entry / exit report from the Federal Authority can be done electronically within two days (for a fee).
The FTA will only issue a TRC if satisfied that the applicant meets the UAE residency criteria. They may request additional documents or evidence before issuing the certificate. The guide includes a list of typical required documents (see Sections 7.5.1–7.5.2), preparing some documents may take extra time. For example, obtaining an entry / exit report from the Federal Authority can be done electronically within two days (for a fee).
Corporate Tax for Individuals
According to the UAE’s Corporate Tax framework, natural persons (individuals) are only subject to Corporate Tax if they conduct a Business or Business Activity in the UAE and if the turnover from such activities exceeds AED 1 million in a Gregorian calendar year.
Sole Proprietorships
Individuals can engage in business via sole proprietorships, where the individual owns and operates the business. Unlike a corporation, a sole proprietorship is not a separate legal entity from its owner, which means that the owner has unlimited liability for the business's debts and obligations.
According to the UAE’s Corporate Tax framework, natural persons (individuals) are only subject to Corporate Tax if they conduct a Business or Business Activity in the UAE and if the turnover from such activities exceeds AED 1 million in a Gregorian calendar year.
Sole Proprietorships
Individuals can engage in business via sole proprietorships, where the individual owns and operates the business. Unlike a corporation, a sole proprietorship is not a separate legal entity from its owner, which means that the owner has unlimited liability for the business's debts and obligations.
For Corporate Tax purposes, the income from a sole proprietorship is treated as part of the natural person’s income.
Scope of Taxable Income and Source of Income
Only income generated from Business or Business Activity conducted within the UAE is subject to Corporate Tax, whether or not an individual is domiciled or ordinarily resides in the UAE.
Only income generated from Business or Business Activity conducted within the UAE is subject to Corporate Tax, whether or not an individual is domiciled or ordinarily resides in the UAE.
Income earned outside the UAE should not be generally subject to UAE Corporate Tax, unless it is related to the individual’s UAE-based Business or Business Activity.
Definition of Business and Business Activity and Exemptions from Corporate Tax
Business refers to any activity conducted regularly, on an ongoing, independent basis. This could include the selling of products or the provision of services. Professions and trades also fall under the definition of a Business.
Business Activity is broader than Business and refers to any transaction or series of activities conducted in the course of a Business. For instance, marketing, internal operations, manufacturing, and service delivery all fall under Business Activity. Even if an activity is supportive or indirect, it can still be categorized as part of a Business Activity.
According to Cabinet Decision No. 49 of 2023, certain income streams should not be considered Business or Business Activity, and therefore not subject to Corporate Tax:
Business refers to any activity conducted regularly, on an ongoing, independent basis. This could include the selling of products or the provision of services. Professions and trades also fall under the definition of a Business.
Business Activity is broader than Business and refers to any transaction or series of activities conducted in the course of a Business. For instance, marketing, internal operations, manufacturing, and service delivery all fall under Business Activity. Even if an activity is supportive or indirect, it can still be categorized as part of a Business Activity.
According to Cabinet Decision No. 49 of 2023, certain income streams should not be considered Business or Business Activity, and therefore not subject to Corporate Tax:
- Wages or salaries earned from employment
- Personal investment income, where no business license is required
- Real estate income, if no business license is required for the property.
How We Can Help
Navigating the complexities of tax residency and compliance can be challenging, but with our deep expertise, we make it simple and stress-free.
Whether you are unsure of your tax residency status, need help understanding international tax agreements, or require assistance in obtaining a certificate proving your UAE residency (TRC), our team of experts is here to guide you every step of the way.
If you’re looking for personalized, expert advice on how Corporate Tax may apply to you or your business, our team is ready to help.
We not only clarify the rules but also offer tailored solutions to ensure you are fully compliant in the UAE and other locations. Let us handle the details so you can focus on what matters most—your business and investments.
We are here to assist with:
Navigating the complexities of tax residency and compliance can be challenging, but with our deep expertise, we make it simple and stress-free.
Whether you are unsure of your tax residency status, need help understanding international tax agreements, or require assistance in obtaining a certificate proving your UAE residency (TRC), our team of experts is here to guide you every step of the way.
If you’re looking for personalized, expert advice on how Corporate Tax may apply to you or your business, our team is ready to help.
We not only clarify the rules but also offer tailored solutions to ensure you are fully compliant in the UAE and other locations. Let us handle the details so you can focus on what matters most—your business and investments.
We are here to assist with:
- Determining if an individual qualifies as a UAE tax resident
- Assessing the application of international tax agreements for UAE residents
- Assisting with obtaining a TRC from the FTA
- Determining if an individual needs to register for Corporate Tax in the UAE
- Guiding through the Corporate Tax registration process.
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