Understanding Corporate Tax Residence for UAE and Foreign Companies

By Nikhita Nithan   17 May, 2023

Under the UAE CT Law, companies and juridical persons that are recognized under the UAE laws will be considered a Resident Person. This covers juridical persons formed in UAE under either mainland or Free Zone laws. Foreign companies may also be treated as Resident Persons if they are effectively managed and controlled in UAE. 

 

Defining Primary Place of Residency

Determining a natural person's usual or primary place of residence in a state involves assessing their habitual or normal residence where they spend most of their time. It should be more than transient and considered as part of their settled routine. Additionally, the person's center of financial and personal interests is in the state if it is the jurisdiction where their closest or most significant personal and economic interests lie. 

Factors such as occupation, familial and social relations, cultural activities, business location, property administration, and other relevant circumstances are considered when determining their centre of financial and personal interests in the state. 

 

Assessing Physical Presence & Exceptional Circumstances 

During a consecutive 12-month period, any day or even part of a day that a natural person is physically present in the state will be counted towards the total number of days they have been present in the state. Physical presence of a natural person in a state does not need to be consecutive to meet the required period of 183 or 90 days within a consecutive 12-month period. 

Additionally, any day where the person's presence in the state is due to exceptional circumstances can be disregarded by the authority in determining the required period. Exceptional circumstances refer to unexpected and uncontrollable situations or events that prevent the person from leaving the state as originally planned, even though they were already present in the state. 

 

Determining if a Non-Resident Person is a UAE Taxable Person

According to the UAE CT law, a Non-Resident Person in the UAE is a taxable individual who is not considered a Resident Person and meets one of the following criteria: having a Permanent Establishment in the UAE, deriving income from the state, or having a nexus as specified by the Cabinet. 

A Non-Resident Person is typically considered to have a Permanent Establishment in the UAE if they have a fixed or permanent place in the country where their business, or a part of it, is conducted. This also applies when a person in the UAE has the authority, on a habitual basis, to conduct business or business activities on behalf of the Non-Resident Person. It includes situations where UAE individuals have the authority to enter contracts on behalf of the foreign entity.

 

The UAE tax residency law simply aims to avoid double taxation. It has listed some requirements based on which any natural person or legal entity could be characterized as a tax resident in UAE. Being a UAE Tax Resident does not make the individual subject to personal income tax but will help individuals who meet the criteria understand their tax residency position and if required, can apply for a Tax Residency Certificate (TRC).

 

Are you aware of your tax residency position? To learn more about how it can benefit your financial planning and international tax compliance, feel free to contact us, or check out our services on General Tax, VAT or Corporate Tax