Types of Resident in UAE Income Tax Regulations
What are the types of resident classifications in UAE income tax regulations? While we took a deep-dive into some background about the Emirati tax system and the initial requirement of obtaining residency in the first part of this series, we’re now going to move onto more technical components for successful international tax planning in the UAE.
How will we accomplish this? We will look at the different types of tax residence available, and the advantages of each, depending on the specific circumstances of the person or persons seeking to create a base in the UAE.
Tax Residence in the UAE
As a general rule, and in addition to the tax benefits on offer in the United Arab Emirates concerning income sourced from the jurisdiction, tax residence provides advantages concerning income arising in other countries. The UAE also has an extensive network of double-taxation agreements (115 at the last count, according to Ministry of Finance figures, although an additional DTA with Brazil has yet to enter into force).
This point is crucial because the vast majority of treaties rely upon the concept of residence to be eligible to receive benefits under the agreement, as will be discussed in more detail below. A tax residence certificate comes in handy to prove residency either for corporate or personal purposes. Grasping the issue of tax certificates will help you take advantage of the benefits stemming from UAE tax residency.
Types of Tax Residence
Certificate of Status of Business/Businessperson
This type of tax residency is most appropriate for those seeking to do business in the UAE, employing one of several corporate formats. A detailed description of the various company formats available in the United Arab Emirates is beyond the scope of this article and it is an area where input from an expert advisor is likely to be invaluable, as there are many different factors to consider. For example, it depends on the planned location of the company (i.e. in a free zone or elsewhere in the region), the proposed business activity and intended ‘audience’ for those activities. Some activities are more suited to specific designated hubs that provide dedicated infrastructure suited to their purposes. There are also some restrictions on what business activities you can carry out and where you can exercise them. In many instances, a UAE resident must be appointed as the main shareholder, although this stipulation is not as difficult as it sounds.
In terms of tax benefits for entities looking to obtain this type of certificate, the advantages of tax residency can extend to the imposition of VAT where the firm trades internationally, offering proof of tax residence to obtain refunds for VAT paid outside of the UAE. A business tax certificate can also be useful in terms of distributing dividends at beneficial tax treaty-stipulated rates, and adds an extra layer of regulatory certainty should the entity require banking services elsewhere in the world – all parties can rest assured that the bulk of the administrative and compliance leg-work should happen in the UAE.
A certificate of status of business is generally valid for one year from the date of issue, and there is a required list of documents to submit and fees to pay. These include:
- An application form signed by the director/s of the legal entity in question, plus the body’s Memorandum of Association.
- 6 months worth of bank statements.
- A copy of the passport and Emirates ID of the person or persons making the application on behalf of the entity.
- A premises lease agreement, or other such documentation, covering at least a six-month period.
- A valid trade licence (where applicable).
- Audited financial statements for the corporate entity.
It is worth noting here that only onshore free zone companies and local companies are permitted to apply for tax residence as a legal person (or on behalf of their directors). That’s because the offshore company format is not a suitable vehicle for becoming tax resident in the UAE. If you would like to set up an offshore entity, then you would have to apply for a tax exemption certificate.
Tax Domicile Certificate
What is a tax domicile certificate? In contrast to a Certificate of Status of Business/Businessperson, a tax domicile certificate (TDC) is a tax residency certificate for individuals seeking to locate their affairs in the UAE. It is especially so when someone has spent more than 180 days as a resident in the UAE. However, the duration of residence is not the only factor to consider when determining whether tax residence is appropriate and/or useful. You should also examine the location of the individual’s primary sources of income, real estate ownership elsewhere, and family ties in other countries.
However, length of residence in the UAE is one of the strands of a tax residency application, and an immigration certificate from the General Directorate of Foreign Affairs and Residency stating the number of days the individual spends in the United Arab Emirates is one of the required documents to present. Others include:
- Copy of your passport
- Copy of residence permission documentation and Emirates ID
- Tenancy contract information (covering six months), or
- Property title deed
- Salary/source of income certificate
You must make the required payments and processing fees that vary based on the type of application and submission method.
What are the benefits of obtaining a Tax Domicile Certificate? While the UAE does not have any withholding taxes on distributions, proof of residence in the jurisdiction for tax purposes could allow the individual to benefit from lower tax rates on income or dividend distributions (or even from an absence of tax on such income) generated in another country, under the terms of a double-taxation avoidance agreement. Tax residency in the UAE could also be useful in case of privacy concerns arising from increasing tax information needs globally, as pertinent information can often be exchanged with the authorities in the UAE, rather than with those in the taxpayer’s country of origin.
Establishing Tax Domicile: How a Service Provider can help
As we have seen in this series, the United Arab Emirates, with Dubai leading the pack, makes it easy to relocate and do business in the jurisdiction, as well as offering an attractive tax environment for both individuals and companies. So, how can a local service provider help you, and why should you consider their services, given the above?
There is just no substitute for local knowledge, especially about regulatory and compliance matters concerning banking and other activities. With the rules in this area regarding tax information exchange, the combating of money laundering activity and other regulatory requirements, a businessperson operating in an environment that is not their ‘home turf’ would do well to team up with a well-connected provider versed in the region’s rules, regulations and customs.
And as previously stated, where other factors (besides the length of stay in the UAE), such as the location of income, property, and other ties elsewhere, come into play, an expert service provider can talk you through the requirements and stipulations you must adhere to for obtaining tax residency in the Emirates, along with carrying out all dealings with the relevant government departments, financial service providers and regulatory authorities.
In terms of convenience, also, the advantages of outsourcing administrative and other duties (both initial and ongoing) to knowledgeable professionals cannot be underestimated; there is no price too high for peace of mind, particularly in the current uncertain climate, and there is no room for guess-work when one’s livelihood and family life are potentially at stake.
If you are interested in learning more about tax residency in the UAE and non-domicile tax rules, the Europe Emirates Group team of international tax and residency experts is ready to guide you through your UAE tax residency journey. Don’t hesitate to write to us.
Business Advisor, Europe Emirates Group