Rules for the determination of Tax Residency for a natural person

In September 2022, the Ministry of Finance (MOF) had published a Cabinet Decision No. (85) of 2022 which specified the conditions for determining the tax residency of a juridical and natural person in the UAE. The aforesaid Decision is applicable from 1 March, 2023. As per Article 8 of the Decision, the MOF has the powers to issue the decisions required to determine the conditions, controls and criteria for implementing any of the provisions of the aforesaid Decision and the Federal Tax Authority (FTA) has the powers to issue clarifications and directives for implementing any of the provisions of the aforesaid Decision.

Under the powers conferred upon the MOF under Article 8 of the Decision, the MOF has recently released a Ministerial Decision No. (27) of 2023 (Ministerial Decision) on Implementation of Certain Provisions of aforesaid Cabinet Decision No. 85 of 2022. The Ministerial Decision provides guidance and rules for the determination of tax residency for natural person.

The Ministerial Decision outlines the following definitions and guidelines for determining residency of a natural person in UAE:

1. Natural persons are considered to have their "usual or primary place of residence" in the State where they habitually or normally reside and spend most of their time as part of their settled routine, in a way that is more than just temporary or fleeting.
2. Natural persons are considered to have a "centre of financial and personal interests" in the State where their personal and economic interests are the closest or of the greatest significance. This includes factors such as their occupation, family and social relationships, cultural activities, place of business, place from which the property of the natural person is administered including any other relevant facts and circumstances.
3. When calculating the time periods to determine tax residency of “183 days or 90 days”, as the case may be, the Ministerial Decision specifies that all days or parts of days when the natural person was actually present in the country should be counted. However, the days do not need to be consecutive in count and should exclude the days when the individual was present in the UAE due to exceptional circumstances. An exceptional circumstance is an event or situation beyond the natural person's control, occurring while he is already in the State, which he could not reasonably have predicted or prevented and which prevents him from leaving the State as originally planned.
4. The "permanent place of residence" as defined in the Ministerial Decision means a furnished house, apartment, room or any other form of dwelling, made continuously available to the natural person. The place need not be owned by the individual. Instead, it requires that the individual has the continuous right to occupy the dwelling at all times and on a regular basis with some degree of permanency and stability and not just occasionally or for the purposes of a stay of short duration.
5. An individual can be considered to be engaged in UAE employment based on the following circumstances as outlined in the Ministerial Decision:
   1. Natural person has entered into a contract with an employer where they undertake to provide a service to the employer under its administration or supervision in exchange for a promised remuneration being paid by the employer are considered as individuals carrying on employment in the UAE.
   2. If a natural person has a continuing relationship with a party from which they derive all or substantially all of their income for services performed in the State, then such a person may be considered as carrying on employment in the UAE.

The nature of the employment can be limited or unlimited and the work may be carried out on a full time or part time basis. A voluntary role for which the natural person does not enter into a contract does not constitute employment.

Thus, any natural person who meets the criteria mentioned above and fits into the conditions mentioned in Cabinet Decision No. (85) of 2022 can apply to the FTA for a Tax Residency Certificate (TRC) in the UAE with effect from 1 March, 2023.