UAE Reveals Tax Residency Framework

The United Arab Emirates (UAE) has been a popular destination amongst Australian expats for many years, with an estimated 15,000 Australians calling it home. UAE encompasses a federation of six emirates, which includes Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Quwain, and Fujairah. Many of the Australians living here are based in Dubai or Abu Dhabi.

One of the critical drives for Australians, and many other nationalities to decide to relocate to Dubai or elsewhere in the UAE is the tax framework. Up until a recent announcement, many companies in the region enjoyed a zero tax rate on their profits, however, earlier this year, on 31 January 2022, the Ministry of Finance announced an updated corporate tax framework, which would operate as follows:

• Income up to AED 375,000 (~A$159,200) taxed at 0%
• Income above AED 375,000 taxed at 9%
• A different rate for large multinationals generating global revenues in excess of AED 3.15bn, however, this rate is yet to be announced.

At a personal income level, the tax rates are even more attractive, with zero Emirate-level personal income tax or Federal income tax. There is also no registration or reporting requirements for individuals in the UAE.

Now that we have a clear understanding of why over 15,000 Australian expats, and many others decide to call the UAE home, what are the requirements to become a tax resident of the region?

The UAE Government has recently announced a change to determine tax residency for ‘natural and legal persons’ in the region, with the aim of achieving a global compliance framework making the measures more transparent. This change will come into effect from 1 March 2023. Previously, there wasn’t a statutory definition of what tax residency meant in the UAE, and was restricted to a physical presence of 183 days or more per year in the region.

Under the new framework, a legal person (entity or establishment) would be treated as a tax resident of the UAE if:

• The entity was established or registered as required by UAE laws excluding branches of foreign nationals persons; or
• It is treated as a tax resident under applicable UAE tax law based on the Federal corporate income tax legislation.

Under the framework, an individual would be considered to be a tax resident of the UAE if:

• Their usual or principal place of residence is in the UAE and it is the centre of their financial and personal interests; or
• They have been physically present in the UAE for 183 days or more in the last 12 months; or
• They have been physically present in the UAE for 90 days or more over the 12-month period and is a UAE citizen, resident, or GCC national with a permanent place of residence in the UAE or has a job or business in the UAE.

For Australian expats, this is a positive step towards providing more clarity regarding tax residency between countries. Where there isn’t a Double Tax Agreement between your home country and country of residence, this can often place expats in a difficult position of confusion regarding their tax residency and resulting tax obligations, however, this step by the UAE goes some way to alleviate this.

If you have any questions regarding the changes, or how this impacts you or your financial affairs, please reach out to our team at Ally.

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General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.