The UAE Introduces New Tax Residency Criteria Through Cabinet Decisions No. 85 of 2022 and No. 27 of 2023

Official UAE government document with Cabinet seal showing tax residency legislation on a desk with UAE flag in background

The United Arab Emirates (UAE) has recently introduced new criteria for determining tax residency status in the country through Cabinet Decision No. 85 of 2022, issued by the UAE Cabinet of Ministers on 9 September 2022. These new criteria apply to both individuals and legal entities, for the purpose of any UAE tax law or bilateral tax agreement, and will take effect on 1 March 2023.

To provide further clarity on the definitions related to tax residency for individuals, Ministerial Decision No. 27 of 2023 was published on 1 March 2023. The new tax residency criteria will replace the existing system of determining tax residency based on the number of days an individual spends in the UAE.

Under the new criteria, an individual will be considered a tax resident if they meet any one of the following conditions:

Spending at least 183 days in the UAE in a calendar year, whether consecutive or not.
Having a place of habitual residence in the UAE, which means having a permanent home in the UAE that is regularly used for personal or family purposes. This criterion is a significant departure from the previous system, which relied solely on the number of days an individual spent in the country. It recognizes that many individuals may have strong ties to the UAE, even if they do not physically reside there for a significant period.
Possessing an active UAE residence visa, which allows them to reside in the UAE for at least six months in a year.

AI Summary

The UAE has reformed its tax residency framework through Cabinet Decision No. 85 of 2022 and Ministerial Decision No. 27 of 2023, effective 1 March 2023, replacing the previous day-count system. The legal framework establishes four pathways to tax residency: spending 183 days in the UAE annually, maintaining a habitual residence, holding an active residence visa valid for at least six months, or spending 90 days in the UAE while not being tax resident elsewhere. These changes broaden the UAE's tax base by capturing individuals with strong UAE connections regardless of physical presence duration, requiring worldwide income taxation for qualifying residents. The article assists individuals and legal entities operating in or connected to the UAE in understanding their potential tax residency status and compliance obligations under the new criteria.

Generated by AI · Not legal advice

Key Takeaways

Cabinet Decision No. 85 of 2022 and Ministerial Decision No. 27 of 2023 introduced new tax residency criteria effective 1 March 2023, replacing the previous system based solely on days spent in the UAE.
An individual qualifies as a UAE tax resident by meeting any one of four conditions: spending 183 days in the UAE annually, having a habitual residence, possessing an active residence visa for at least six months, or spending 90 days in the UAE without being tax resident elsewhere.
The habitual residence criterion represents a significant departure from the previous framework by recognizing strong UAE ties even without substantial physical presence in the country.
Individuals classified as UAE tax residents under the new criteria become subject to taxation on their worldwide income, not just UAE-sourced income.
The 90-day criterion provides flexibility for individuals with frequent business travel or family connections to the UAE who may not meet the 183-day threshold.
The new criteria apply to both individuals and legal entities for purposes of any UAE tax law or bilateral tax agreement, requiring comprehensive review of existing tax positions.

Background of UAE Taxes

The UAE has long been known for its tax-free status, attracting businesses and individuals from around the world. However, as part of its efforts to diversify its economy and generate more revenue, the UAE has introduced new tax residency criteria. The decision aims to broaden the country’s tax base and support economic growth and development.

Implications of the New UAE Tax Residency Criteria

The new tax residency criteria mean that individuals who were previously considered non-residents for tax purposes may now be classified as residents. This change has significant implications for such individuals, as they will now be subject to UAE taxation on their worldwide income. It is essential for individuals to understand the new criteria and its impact on their tax obligations.

These new criteria for tax residency are expected to have a significant impact on individuals and legal entities in the UAE, as they will need to review their tax positions and make necessary adjustments to comply with the new rules. It is important for taxpayers to understand the new criteria and seek professional advice to ensure compliance with the UAE tax laws and regulations.

New UAE Tax Residency Criteria

Under Cabinet Decision No. 85 of 2022, an individual may be considered a tax resident of the UAE, even if they do not meet any of the following criteria:

They have a residency visa issued by the UAE;
They spend at least 183 days in the UAE in a calendar year; or
Their place of employment or business is located in the UAE.

If an individual does not meet any of the above criteria, they may still be considered a tax resident of the UAE if they are not considered a tax resident in any other jurisdiction and spend at least 90 days in the UAE in a calendar year. This means that an individual who spends less than 183 days in the UAE in a calendar year and does not have a permanent home or active residence visa in the UAE may still be considered a tax resident if they spend at least 90 days in the country and are not tax residents in any other country.

Tax residency is a crucial factor that determines an individual’s tax obligations in the UAE. Previously, an individual was considered a tax resident if they physically resided in the UAE for 183 days or more in a given year. However, with the introduction of the 90-day criterion, tax residency in the UAE has become more flexible.

The 90-day criterion is designed to capture individuals who may not be physically present in the UAE for a significant period but have strong connections to the country. For instance, individuals who frequently travel to the UAE for business or have family ties in the country can be considered tax residents under this criterion.

How the 90-Day Criterion Affects Tax Residency in the UAE?

It is important to note that the 90-day criterion does not automatically exempt an individual from tax residency in other countries. It is necessary to consider the tax residency rules in any other countries where an individual may have tax obligations to determine their overall tax residency status and obligations.

In summary, the introduction of the 90-day criterion recognizes the diverse ways in which individuals may have ties to the UAE and provides greater flexibility in determining tax residency. As such, it is essential for individuals to understand this criterion and consider its implications on their tax obligations in the UAE and other countries.