Understanding Ministerial Decision No. 27 of 2023 and its Impact on Tax Residency in the UAE

The United Arab Emirates (UAE) has recently issued Ministerial Decision No. 27 of 2023, which aims to provide guidance and clarity on the implementation of certain provisions of Cabinet Decision No. 85 of 2022. This decision focuses on the determination of tax residency in the UAE.

The UAE is a signatory to the OECD’s Base Erosion and Profit Shifting (BEPS) project, which aims to tackle tax avoidance by multinational companies. As part of this commitment, the UAE has introduced a range of measures to ensure that it complies with international tax standards. One such measure is the introduction of tax residency rules, which determine whether a person or company is subject to tax in the UAE.

The Cabinet Decision No. 85 of 2022 provides the general framework for the determination of tax residency in the UAE. It sets out the criteria for determining whether an individual or entity is considered a tax resident in the UAE. The Ministerial Decision No. 27 of 2023 provides further details on how these criteria will be applied in practice.

Under the new rules, an individual or entity will be considered a tax resident in the UAE if they meet one of the following criteria:

1. They have a place of residence in the UAE;
2. They spend more than 183 days in the UAE during a tax year; or
3. They have a permanent establishment in the UAE.

The Ministerial Decision clarifies that a “place of residence” includes any property that an individual owns or rents in the UAE, regardless of whether it is used as a primary residence or not. The decision also clarifies that the 183-day rule applies to both consecutive and non-consecutive days spent in the UAE.

For entities, the definition of a permanent establishment includes any place where the entity conducts business, whether through an office, branch, factory, or other facility. The Ministerial Decision also provides guidance on how to calculate the number of days an individual or entity has spent in the UAE, as well as the documentation that will be required to support a claim of tax residency.

The new tax residency rules are an important development for the UAE, as they bring the country in line with international tax standards and provide clarity and certainty for taxpayers. The implementation of these rules will also help to ensure that the UAE is viewed as a transparent and cooperative jurisdiction when it comes to tax matters.

UAE has double taxation treaties and bilateral agreements with 137 countries. These agreements reference the country's domestic laws, including Ministerial Decision No. 27 of 2023 on the determination of tax residency. Therefore, individuals who are eligible can apply to the Federal Tax Authority (FTA) requesting a tax residency certificate, which confirms their tax residency status in the UAE.

This certificate is a formal requirement if the individual wishes to further apply for tax relief or claim benefits in a different jurisdiction under the applicable tax treaty. For example, if an individual is a tax resident in both the UAE and another country, the tax treaty may provide relief from double taxation, which may require the individual to provide their tax residency certificate to claim such relief.

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