Tax residency in the UAE for legal entities and individuals

Tax residency in the UAE for legal entities and individuals

The majority of potential foreign investors wonder: how to take advantage of all the benefits and competently join the economic environment of the state?

The resident of the UAE status allows fully becoming a link in the business environment of the United Arab Emirates, as well as minimizing taxes.

 

Residency in the Emirates is a clear advantage in the world economic arena, as it provides immense prospects for resident status owners.

First and foremost, this is the possibility of using the privileges granted by agreements on avoidance of double taxation, effective for both individuals and legal entities.

Such agreements exist with Ukraine, Kazakhstan, Latvia, Belarus, Estonia, Cyprus, Poland, Great Britain and many other countries.

In addition, the residence in the UAE allows opening bank accounts (personal and corporate), while not falling under the automatic exchange of tax information.

 

At a time, when there is a noticeable stiffening of tax control in many countries of the world, the UAE is still one of those countries that allow completely legal implementation of tax planning using various instruments.

Residents and local citizens are less sensitive to the tax burden than residents of many European countries.

A foreigner is exempt from income tax, as well as many other penalties by becoming a resident of the United Arab Emirates.

 

However, starting from the January 1, 2018, VAT is introduced at a rate of 5%, but the state has no plans to impose corporate tax or income tax.

Thus, the UAE will change its tax-free status to a more universal – low-tax jurisdiction. However, taxes do not affect the profits of individuals.

Since 2018, the United Arab Emirates will join the OECD, the Organization for Economic Cooperation and Development, on the basis of which an automatic exchange of tax information is being introduced in the country.

Having the resident of the country status, foreign citizens will get a legal and simple opportunity not to get to the lists for exchange.

 

Based on the foregoing, the obvious question is: who are the residents of the United Arab Emirates?

Residents of the country are owners of a resident visa, which allows residing on the territory of the state and enjoying the benefits of the local economic system.

There are several types of resident-visas:

1) Employment visa;

2) Investor’s visa;

3) The dependent’s visa, which can be obtained by the closest relatives of those, who have already had the resident of the UAE status.

You can obtain a resident visa on the basis of:

– official employment in a local company;

– investing in the Emirates economy – company’s opening or real estate purchasing;

– or due to the sponsoring by another person (husband, wife, father, mother).

A resident visa provides an official status to a foreign citizen for a period of 2 or 3 years, depending on the place of its receipt.

Of course, the main «bonus» from having the resident status is the opportunity to obtain a certificate of tax residency.

 

Special attention should be paid to the fact that the resident visa’s presence does not impose the obligation to stay in the country for a certain amount of time on its owner, but it is not possible to stay outside the country for more than 6 months – that is, it is necessary to cross the UAE border for at least 1 day every 6 months.

It is recommended not to spend more than 170 days outside the country to avoid problems when crossing the border.

 

Regarding the issue of tax residency in the United Arab Emirates: after receiving a resident visa, its owners can apply for a Certificate of Tax Residence status or Tax Domicile Certificate.

This document is provided for both individuals and legal entities (companies registered in the UAE and meeting certain requirements).

Previously, the Ministry of Finance of the UAE is the body that issues a Certificate of Tax Residence, has very clearly stipulated that the document can only be issued to those, who have an Employment visa.

However, now those who are investing in the economy of the Emirates or are the dependents can also apply for the Certificate.

Also, since the last 2016 year, a requirement to provide a reference from the Immigration Service about the number of days a person spent in the UAE has been introduced – yet there are no requirements that the document clearly indicate the presence in the UAE for 180 or more days a year.

In addition, based on our experience, we received certificates for customers, who lived in the UAE for much less than 180 days.

Of course, it is worth remembering that even having received a Certificate of Tax Residence in the UAE, you lose the status of a tax resident of the previous country only if its legislation does not recognize you as its tax resident.

Theoretically, if you live in Ukraine for 265 days a year and only 100 spend in the UAE, then even after obtaining a certificate in the Emirates, Ukraine will still treat you as its tax resident under Art. 14 of the Tax Code of Ukraine.

The process of the Certificate of Tax Residence (Tax Domicile Certificate) registration is quite simple, thanks to the simple requirements of the Ministry of Finance of the UAE.

In order to obtain the taxpayer’s status for individuals in the United Arab Emirates, it is necessary to provide a certain list of documents, namely:

– a copy of passport and visa;

– a copy of the certificate of the State’s resident (Emirates ID);

– living space lease contract, or documents showing the presence of own housing in the Emirates;

– an extract from a personal bank account for the past six months with the seal of a local bank.

Therefore, in order to acquire the tax resident’s status, it is also necessary to open an account with a local bank and after 6 months the resident can register the taxpayer’s status.

 

It is worth emphasizing that it is still necessary to provide confirmation of a permanent income source presence and a reference from the migration service.

The certificate’s issuing process can take 2-3 weeks.

The document is valid for a year from the date of issue; the amount of state taxes for the preparation of the Tax Domicile Certificate for individuals is about USD 650.

 

Companies that cannot get TDC:

– an offshore company;

– a company that does not have an office lease contract – at least virtual;

– a company, the managers or founders of which do not have a resident visa;

– a company that does not have an account in a local bank.

It is also necessary to take into account that the account cannot be «zero», it is necessary to show the movement of funds.

As for the audit, it is worth noting, that even if audit for this particular company is not mandatory, it will still have to be submitted to the state authorities.

The Tax Domicile Certificate for companies is issued for one year – the validity period starts from the end of the fiscal year.

The certificate’s issue for legal entities also takes from 2 to 3 weeks, but the cost is significantly different – the amount of state fees is $ 2,800.

 

In addition, we note that the Certificate is being issued to the tax authorities of a specific country and, thus, can be granted only to the tax authorities of those states with which the United Arab Emirates has signed agreements on double taxation avoidance.

At the end of 2016, it became known that since 2018, the Emirates have started the automatic tax information exchange.

 

The concept of the «broadest approach», which the UAE authorities plan to implement, means that information will be collected about all accounts opened by non-residents – personal accounts of non-residents, as well as the corporate accounts of companies, whose owners do not have the resident of the UAE status.

Information will be collected and transferred to a specially created department at the Ministry of Finance of the UAE, even if account holders are not citizens of OECD countries.

Today, the Ministry of Finance does not plan to transfer information to the tax authorities of countries that are not OECD participants without their official request, but if it is received, it is likely that the transfer will be performed.

Consequently, the possession of the resident of the United Arab Emirates status is also a panacea against the information disclosure to the tax authorities of the country of foreign citizens’ origin.

Despite the fact that under the pressure of many other countries, the United Arab Emirates was forced to join the system of automatic tax information exchange, the state still managed to maintain a fine version of the taxpayer’s information protection.

 

There is one interesting point within tax information non-disclosure – the definition of residency.

Thus, in order to be considered a resident of the UAE and thus not subject to the tax information exchange, it is sufficient for the applicant to be the owner of the resident visa of the Emirates.

Today, the UAE banks use a fairly simple scheme to determine the customer’s resident status presence.

Checking whether he is a resident of the state is performed at the first stage of interaction.

If the verification established the resident-status existence, the issue is considered to be resolved and closed.

 

Otherwise, the bank will simply examine the customer’s passport and will not take into account his place of residence – that is, for example, a Ukrainian citizen, who is a resident of France (and has given his address to the bank) will be considered a resident of Ukraine and will be reported to the tax authorities of the country.

Some customers of the UAE banks have expressed a desire to close accounts and thus avoid information exchange.

In this case, it should be remembered that the information collection will be applied to all accounts that were opened in banks before December 31, 2016, and therefore the very fact of closing the account in 2017 will not help – it will be necessary either to obtain a resident visa, or to reconcile with the fact that the tax authorities of the home country can obtain information about the existence of personal or corporate accounts in the UAE banks.

However, at the same time, despite the tax control stiffening, the Emirates still provide a lot of prospects for those who have gained the tax resident status.

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