The United Arab Emirates (“UAE”) did not previously have any formal statutory rules to determine the tax residency of an individual. However, the UAE Ministry of Finance and the UAE Federal Tax Authority (FTA) required an individual to have resided in the UAE for a minimum of one hundred eighty-three days (183) in a 12-calendar month period in order to be eligible for obtaining a tax residency certificate.

This position has been changed pursuant to the implementation of Cabinet Resolution No. 85 of 2022 on the Determination of Tax Residency which came into force on 1 March 2023. The Resolution together with applicable Ministerial Decisions has introduced statutory rules for the determination of tax residency of individual and legal entities in the UAE (the Tax Residency Rules).

In this legal update, we discuss the criteria set out in the Tax Residency Rules in relation to determining the UAE tax residency of individuals.

Pursuant to the Tax Residency Rules, there are three routes which an individual can adopt to be considered as tax resident in the UAE and thereby be eligible to obtain a tax residency certificate from the UAE which is required if an individual wishes to benefit from the double tax avoidance treaties between the UAE and other countries. The three routes are as follows:

A. Route 1 – Physical Presence of 183 days

The Tax Residency Rules have retained the previous approach adopted by the FTA whereby an individual will be considered as a tax resident in the UAE if they reside in the UAE for a cumulative period of at least 183 days in a calendar year.

B. Route 2 – Physical Presence of 90 days Combined With Other Criteria

This route comprises of a three-fold test which must be satisfied for an individual to be considered as a tax resident in the UAE. The three-fold test is as follows:

1.    Reside in the UAE for a cumulative period of at least ninety (90) days in a calendar year.

2.    Hold a valid UAE residence visa or is a UAE citizen or is a citizen of any member state of the Gulf Cooperation Council (namely, Saudi Arabia, Oman, Qatar, Bahrain or Kuwait).

3.    Have:

(a). continuous right of occupation to a furnished accommodation for the entire calendar year; or

(b). is employed by a company in the UAE or carries out a business in the UAE.

This route will enable individuals who, while being permanently based in the UAE, travel extensively for work and leisure and as such are unable to satisfy the one hundred eight three (183) days criteria of route 1.

C. Route 3 – UAE as Primary Place of Residence and Centre of Financial and Personal Interests

This route comprises of a two-fold test which must be satisfied for an individual to be considered as tax resident in the UAE. The two-fold test is as follows:

1.     An individual’s primary place of residence is the UAE – that is, the UAE is the jurisdiction where the Individual resides typically and spends most of his time, compared to any other jurisdiction.

2.     An individual’s centre of financial and personal interests is the UAE – that is, the UAE is home to or is closest to, the individual’s personal and economic interests which include the individual’s occupation, place of business, property, and familial relations among others.

Conclusion

Whereas Routes 1 and 2 contain objective criteria which can be easily established using factual evidence, Route 3 contains subjective criteria compliance which may be subject to the judgment of the FTA. However, overall, the Tax Residency Rules is a welcome development and make the UAE an attractive jurisdiction for individuals that have global businesses and travel frequently without living in any single country for more than ninety (90) days.