Tax Residency in the UAE: Natural vs. Juridical Persons

Tax residency in the UAE is a significant factor that influences tax obligations and the eligibility to claim tax benefits, especially under Double Taxation Agreements (DTAs). For both individuals (natural persons) and entities (juridical persons), residency establishes the taxation rights of the UAE and enables taxpayers to leverage international tax treaties. 

The Federal Tax Authority (FTA) has recently provided guidelines on tax residency for natural and juridical persons in the UAE, which include the administrative procedures for obtaining a Tax Residency Certificate (TRC). 

This article outlines the key considerations for tax residency in the UAE for both natural and juridical persons, highlighting the differences in their residency determinations.

Tax Residency for Natural Persons

A natural person can qualify as a UAE tax resident based on physical presence and personal and financial ties to the country. According to the FTA guidelines, an individual is considered a tax resident if they meet any of the following criteria:

• They are physically present in the UAE for at least 183 days in a consecutive 12-month period.
• They are physically present in the UAE for 90 days in a consecutive 12-month period and either hold UAE or GCC nationality, have a UAE residence permit, or maintain a permanent residence or employment in the UAE.
• Their usual place of residence and primary center of personal and financial interests are in the UAE.

Physical Presence Tests
The 183-day physical presence test is the most straightforward criterion for tax residency. For individuals who do not meet the 183-day threshold, the 90-day test offers an alternative, provided they meet additional conditions, such as nationality, residency, or business ties to the UAE. For instance, Fatima, a foreign national, qualifies as a tax resident under the 90-day test by having a residence permit and continuous access to housing in the UAE, despite not owning property.

Exceptional Circumstances
In certain cases, unforeseen circumstances, like medical emergencies or natural disasters, allow some days spent in the UAE to be disregarded. For example, if an individual is delayed from leaving the UAE due to illness, these additional days may not count toward the residency determination.

Tax Residency Certificate (TRC)
Natural persons who qualify as UAE tax residents can apply for a TRC, which allows them to claim tax benefits under DTAs. The TRC verifies residency status for a given tax year, as outlined in the FTA’s guide.

Tax Residency for Juridical Persons

Juridical persons, such as corporations and other legal entities, have their own criteria for determining tax residency. In the UAE, a juridical person that qualifies as a tax resident is subject to Corporate Tax on its worldwide income. This can include income from both UAE and foreign sources, although certain types of income earned abroad may be exempt. The FTA’s guidelines distinguish tax residency for juridical persons based on incorporation or effective management and control.

Residence by Incorporation
Entities established in the UAE, including Limited Liability Companies (LLCs), Private Shareholding Companies (PSCs), and Public or Private Joint Stock Companies (PJSCs), are considered UAE tax residents. This classification extends to entities formed in UAE Free Zones, as well as foundations and trusts organized under UAE mainland legislation, all subject to specific tax regulations.

Residence by Effective Management and Control
For juridical persons incorporated outside the UAE, residency is determined by the place of effective management and control. If a foreign entity’s central decision-making occurs within the UAE, it qualifies as a UAE tax resident, subjected to Corporate Tax on global income. Determining the place of effective management relies on various tests, including the board of directors test, delegation of authority, and shareholder activity.

Key Differences Between Natural and Juridical Persons in Tax Residency

• Criteria for Residency: Natural persons are assessed based on physical presence, nationality, and economic ties to the UAE, while juridical persons are assessed on incorporation within the UAE or the location of management and control.

• Tax Implications: Natural persons benefit primarily from personal tax relief under DTAs, while juridical persons are subject to Corporate Tax on worldwide income if they qualify as UAE tax residents.

• Documentation and Processes: Natural persons must fulfill physical presence tests, whereas juridical persons require evidence of incorporation or effective management to substantiate tax residency status.

Tax residency is central to understanding both tax obligations and opportunities for tax relief in the UAE, as per the FTA’s recent guidance. For natural persons, residency is primarily determined by physical presence and ties to the UAE. For juridical persons, residency depends on incorporation status or where management and control occur. The distinction in criteria reflects the varied nature of residency for individuals versus entities, providing pathways for compliance and access to treaty benefits. Whether for individuals or corporations, understanding UAE residency rules is essential for navigating the tax landscape and ensuring compliance with the UAE’s tax regulations.

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