Lawyer Monthly - March 2024

WWW.LAWYER-MONTHLY.COM 49 individuals (and legal entities) in respect of their UAE tax residency status, the domestic Tax Resident definition has been aligned to internationally recognised standards, through Cabinet Decision No. 85 of 2022, issued on 9 September 2022, and Ministerial Decision No. 27 of 2023 published on 1 March 2023, offering a transparent framework for those considering the UAE as their tax residency. What is at stake? This new domestic law gives additional clarity, which facilitates the application of bilateral tax agreements (commonly called Double Tax Agreements (“DTAs”)) and the issuance of Tax Residency Certificates to benefit from such treaties. Many of the DTAs the UAE has entered into with other territories make reference to the domestic laws of the UAE for determining whether a person is a resident of the UAE for purposes of the respective treaty. In brief These provisions apply to both individuals and legal entities and, under the new criteria, an individual will be considered a tax resident if he meets any one of the following conditions: 1. Spending at least 183 days in the UAE in a calendar year, whether consecutive or not. 2. If his place of habitual residence is in the UAE, i.e. he has a permanent home in the UAE regularly used for personal or family purposes - the introduction of this criterion is a significant departure from the previous system based solely on the number of days spent in the country. It recognizes that many individuals may have strong ties to the UAE, regardless of their physical presence for a significant period. It is worth noting further that: - These clarifications, still based on a physical footprint, continue to create difficulties for active businessmen or professional athletes constantly traveling worldwide. - Many tax considerations apply to UAE residents but also to non-UAE residents who, for example, carry out a business activity or invest in real estate assets in the UAE. On 9 December 2022, the UAE issued the Federal Decree-Law No. (47) of 2022 on the taxation of corporations and businesses (the “CT law”), which will be effective for financial years starting on or after 1 June 2023. What does this mean for business owners? The enactment of the CT Law means a drastic tax climate change for all economic actors, impacting both domestic and foreign investors, and it marks a departure from the UAE’s historical absence of corporate income tax. A key attraction is the absence of personal income and wealth taxes, setting the UAE apart and making it appealing for those seeking to minimize tax liabilities.

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