Setting up tax residency in the UAE has emerged as a strategic move for EU entrepreneurs seeking to expand into global markets and benefit from favourable tax treaties. Dubai is emerging as an international business hub, and tax residency UAE for EU entrepreneurs.
For anyone exploring the determination of residency, it is crucial to take into account the criteria for all and the latest regulations for qualifying as a UAE tax resident.
Understanding Tax Residency Rules in the UAE
Before exploring business opportunities, it is crucial to understand the taxation residency criteria and how an individual can be considered a tax resident. The Federal Tax Authority (FTA) oversees the tax system that governs tax residence in the UAE.
The Federal Tax Authority has implemented a new policy under Ministerial Decision No. 27 of 2023 that was effective as of 1 March 2023, and laid the foundation for both natural persons and legal entities.
According to the UAE Government, tax status will depend on the number of days spent in the UAE and the presence of other personal and economic ties. For individuals, the underlying conditions are:
- Physically present in the UAE for at least 183 days in a consecutive 12-month period is essential for obtaining a UAE tax residence.
- Must have stayed in UAE for at least 90 days over 12 months, having a place of residence, along with financial and personal interests in the UAE, is essential for obtaining tax residency.
- Have a valid visa and be considered a tax resident in the UAE by the FTA.
Businesses that are incorporated or successfully managed in Dubai or elsewhere in the UAE are considered double tax residents.
UAE Tax Residency Certificate and Its Importance
Entrepreneurs will have to get a Tax Residency Certificate (TRC), often referred to as a tax domicile certificate, to justify their tax status. The Federal Tax Authority issues this legal document, confirming that an individual or legal entity have tax residency in the United Arab Emirates.
The TRC, or tax residence certificate, is particularly important for individuals looking to optimize their tax situation in the UAE.
- Taking advantage of double taxation treaties between the United Arab Emirates and EU member states.
- Avoiding taxation on the same income twice across borders.
- Providing evidence that you have maintained compliance with UAE tax law either in a corporate or personal capacity.
The TRC is especially crucial for international business owners and investors, enabling them to take advantage of bilateral agreements between the UAE and over 140 countries.
The TRC is particularly crucial for international business Owners and investors, as it allows them to benefit from the favorable tax system in the UAE. Bilateral agreements signed between the UAE and more than 140 countries.
Tax Residency Criteria for Individuals and Businesses
The UAE provides a clear framework for differentiating between individuals and businesses qualifies as a tax resident for tax purposes.
For individuals:
- Stay in the UAE for 183 days or more in a consecutive 12-month period.
- Alternatively, stay for 90+ days in the UAE, but must reside in either Dubai or the wider UAE and have your personal and financial interests in either emirate.
For legal entities (companies in Dubai or the UAE):
- A company incorporated in the UAE is automatically a UAE tax resident.
- A foreign company may be considered a UAE tax resident if it is effectively managed and controlled in the UAE.
This level of control enables entrepreneurs and international businesses to determination of tax residency status with their business model, lifestyle, and compliance obligations.
New UAE Tax Residency Rules and Their Impact
The 2023 rules of new tax residency UAE for EU entrepreneurs provide a comprehensive outline and guidelines for tax residency. They aim to ensure a country adheres to international taxation standards, whilst continuing to offer a tax-friendly environment for individuals and legal entities.
Some notable provisions of the ministerial decision are:
- Physically present for a minimum of 90 days in the UAE with a valid residency visa and proof of personal and financial interests.
- Acknowledgement that a separate legal entity that is incorporated in the UAE automatically qualifies for favourable corporate income tax rates under the new rules.
- Explicit criteria for determining residency status, allowing entrepreneurs to protect themselves against issues relating to tax agreements in their home countries.
For EU nationals, this means clarity regarding cross-border taxation and access to double taxation treaties, which will reduce their overall tax burden.
Corporate Taxation and Free Zone Benefits
The UAE has implemented a corporate tax regime, though rates are effective globally competitive, and among the lowest. Additionally, the free zone format in Dubai provides large tax exemptions for qualifying businesses.
Understanding the UAE Corporate Tax Regime
Since 2023, the corporate tax in the UAE has been introduced a flat 9% only for businesses with profits over AED 375,000, protecting small businesses and startups against steep tax implications.
How Free Zones Provide Tax Exemptions and Incentives
Dubai’s free zones continue to offer 100% tax-free exemptions on specific activities, providing entrepreneurs with beneficial options for starting a new business and obtaining tax advantages. Often free zones also offer tax exemptions and flexible business setup structures as well as 100% ownership, which can enhance the appeal of establishing a business in the UAE residence.
Retaining Personal Income and Business Profits in a Tax-Free Environment
One of the many attractive features is that the United Arab Emirates has no personal income tax, which means individuals and businesses can retain more profit to keep for themselves and benefit from world-class infrastructure.
Capital Gains, Property, and Inheritance
The UAE has distinct benefits surrounding capital gains, property taxation and inheritance planning for EU nationals.
Is there a Capital Gains Tax in Dubai?
UAE nationals have the benefit of no capital gains tax on most investment income and the absence in many European Union countries enables EU business people to grow their wealth without tax.
Property Ownership and Real Estate Tax Benefits
Foreign nationals can own property in certain areas without property tax regulations, enabling individuals to invest in the UAE and also benefit from their own personal investments.
Inheritance and Estate Planning for EU Nationals
While the UAE does not levy an inheritance tax, expats need to have an estate plan to make sure their assets are distributed as they would want. Careful planning ensures compliance with local tax laws while maximizing the available tax exemptions for UAE residents.
Double Taxation Treaties with EU Countries
One primary rationale for establishing residency in the UAE is its tax treaties with EU countries, which help avoid double taxation.
What Double Taxation Means For Expatriates
Not having treaties could mean that expatriates could be taxed twice on the same income; once by their home country and once again by the country of residence.
EU-UAE Treaties That Lessen Tax Implications
The United Arab Emirates has more than 140 double taxation treaties in place to ensure nationals of an EU country will have reduced withholding tax, or sometimes no withholding tax at all, for cross-border payments.
Tax Planning and Cross-Border Investment
These agreements facilitate cross-border investment and offer clarity for entrepreneurs managing businesses across jurisdictions, which is why the UAE is a preferred jurisdiction for tax and financial planning.
Residency and Visa Opportunities in Dubai
Aside from tax efficiency, entrepreneurs can also find additional visa and residency options.
Residency Options for EU Nationals in Dubai
EU nationals can apply for residency visas via property investment, formation of a company or employment in a job, allowing them to be recognised as a UAE tax resident.
Golden Visa and Long-Term Residency Benefits
The Golden Visa permits long-term residency up to 10 years for investors, entrepreneurs, and skilled professionals, making it easier to live in the UAE. This offers flexibility in tax planning and enhances connections with Dubai and the UAE, particularly under the new rules for tax residency for individuals.
Reasons of Moving to Dubai is Good for Entrepreneurs and Investors
With its tax advantages, a pro-business ecosystem, and leading infrastructure, Dubai is one of the most viable options for EU nationals.
Conclusion
The tax residency UAE for EU entrepreneurs, offers favourable tax exemptions, and affords access to double taxation treaties, significantly enhancing their global tax planning. Whether staying for 90+ days, incorporated as a legal entity, or residency based on investment, Dubai offers safety and a reliable, consistent strategic base for international business.
At Xpert Advisory, we simplify your assessment of tax residency, work through obtaining a tax residency certificate for you, and ensure compliance with UAE tax law. Are you ready to be a UAE tax resident? Reach out to Xpert Advisory today and allow us to manage the process of obtaining tax residency while you build your business and investments in the UAE.
FAQs
1. How many days do I have to spend in Dubai to be a VAT resident of UAE?
Commonly, you need to spend at least 183 days in 12 months consecutively to meet the requirement for eligibility to be considered as a tax resident of the UAE. You may also be eligible for less than 183 days if you have strong connections to the UAE.
2. Will individuals be taxed under income tax in the UAE?
No, individuals are not taxed under personal income taxation in the UAE, which attracts EU nationals seeking a tax-free lifestyle.
3. Will EU nationals have a double taxation treaty in the UAE?
Yes, the UAE has signed double taxation treaties with over 140 countries, including EU states, meaning EU nationals will not be subject to double taxation when crossing borders.
