Khaleej Times, Saturday, Mar 11, 2023 | Sha'ban 19, 1444
UAE: Domestic tax residency rules to benefit individuals and companies
International companies as well as individual consultants will benefit from the
domestic tax residency rules, say experts. Arun Leslie John, Chief Market
Analyst of Century Financial gave the example of a German-incorporated company
with a trading branch in Dubai that has a taxable income of Dh100 million in the
fiscal year beginning June 1, 2023.
“The company is subject to a 15 per cent corporate tax rate in Germany on its
global income, including its branch income in Dubai,” he said.
“However, under UAE corporate tax law, the company can choose between two
options for its branch profits. They can either claim foreign tax credit for
taxes paid in Germany or elect to be taxed at the UAE corporate tax rate of 9
per cent and repatriate its branch profits to Germany without further taxation.”
If the company chooses the second option, resulting in a corporate tax liability
of Dh9 million in the UAE, the company can repatriate its branch profits of Dh1
million to Germany without incurring any additional taxation.
According to John, due to the company electing to pay tax in the UAE, it
benefits from a lower effective tax rate than Germany's standard 15 per cent
rate. As a result, it saves Dh6 million in taxes compared to paying corporate
tax at 15 per cent. Additionally, the company can repatriate its branch profits
without facing any withholding tax or double taxation.
Earlier this month, the Ministry of Finance (MoF) issued Ministerial Decision
No. 27 of 2023 on implementation of certain provisions of Cabinet Decision No.
85 of 2022 on determination of tax residency. The law regarding this was issued
in September 2022 and stipulates the number of days which an individual is
physically present in the UAE to be considered a tax resident among other
Beneficial for individuals and companies
In June 2023, 9 per cent corporate tax (CT) will come into effect for UAE
mainland companies. Given this scenario, it will be beneficial for individuals
and companies to tax residents of the UAE, says Nazar Musa, CEO, PRO Partner
Group. “Compared to other worldwide corporate tax averages, 9 per cent is still
considerably low in comparison to say 25 per cent corporate tax in the UK,” he
said. “So, it would remain in the company’s best interest to be a UAE tax
resident and obtain a TRC. This also applies to individuals who may have income
and profits from another jurisdictions.”
Musa gave the example of a consultant as an individual who could benefit from
the tax residency. “An individual consultant earning income from another
jurisdiction would choose to make the UAE their home base to benefit from the
zero-income tax in the UAE,” he said. “It would be in the individual’s best
interest to become a UAE tax resident and obtain a Tax Residency Certificate
(TRC). As the UAE has 0 per cent personal income tax the individual can submit
their TRC to other tax authorities to demonstrate that they are a UAE tax
resident, so that relevant income is taxed based on their residency status in
According to Farhat Ali Khan, Managing Partner of Century Maxim International,
the most significant benefit of the scheme would be to avoid double taxation.
“Obtaining a Tax Residency Certificate (TRC) showcases transparency and
demonstrates accountability and commitment to operating legally while fulfilling
tax obligations,” he said. “Under the scheme, people can benefit by paying taxes
in only one country- either in their country of residence or the country where
the income is generated. They can also gain exemption from certain taxes like
personal income tax, capital gains tax, and inheritance tax. Also, subject to
applicable laws and regulations, TRC holders involved in import-export
activities may be able to take advantage of certain tax incentives or
What is it?
The Domestic Tax Residency allows a UAE tax resident to be exempted from paying
double taxation in their home country as well as the UAE. This will come into
play when corporates and individuals will pay 9 per cent corporate tax when it
comes into effect in June.
Who is eligible?
The Domestic Tax Residency regulation defines a UAE tax resident as either a
natural person or a juridical person. A natural person is defined as an
individual with a permanent place of residence in the UAE, or one that is
employed, or has a business in, the UAE. It also refers to individuals who:
Have spent 183 days or more in the UAE over a consecutive 12-month period
Primarily reside in the UAE
Are based out of the UAE for financial and personal interest