Impact of the new Tax Residency Rules on the Common Reporting Standard Requirements in the UAE

In detail

Impact on CRS

In accordance with the Cabinet Decision Number 16/9W of the year 2016, the CRS Multilateral Competent Authority Agreement (“MCAA”) was signed on 22 April 2017 in the UAE and the CRS went live in the UAE with an effective go-live date of 1 January 2017.

Under the CRS, UAE RFIs are required identify and report CRS reportable accounts. A Reportable Account is a financial account held by any reportable person, i.e. any person (individual, entity or controlling person(s)) identified as a resident for tax purposes in a reportable jurisdiction. UAE RFIs are, therefore, required to determine whether the jurisdiction of tax residence declared by a Reportable Person is reasonable, in light of the new rules.

With the introduction of the new UAE tax residency rules, UAE RFIs will be required to update their processes to include the new tax residency criteria when assessing jurisdiction of tax residency of account holders for the purposes of the CRS.

For example, there may be scenarios where a person qualifies as a tax resident under the tax residence rules of more than one jurisdiction and, therefore, is a tax resident in more than one jurisdiction. For the purposes of the CRS, UAE RFIs must ensure account holders disclose all tax residences in the required self-certification forms and related documentation.

A natural person will be considered a “UAE Tax Resident” if the individual:

• has their usual or primary place of residence and their centre of financial and personal interests in the UAE;

• was physically present in the UAE for a period of 183 days or more during a consecutive 12-month period;

• was physically present in the UAE for a period of 90 days or more in a consecutive 12-month period and the individual is a UAE national, holds a valid residence permit in the UAE or holds the nationality of any GCC Member State, where:

(i) he or she has a permanent place of residence in the UAE; or

(ii) he or she carries on an employment or a business in the UAE.

What does the new UAE Tax Resident definition mean for individuals?

• The introduction of the new UAE tax residency criteria for individuals does not mean individuals will be subject to personal income tax in the UAE.

• The UAE does not levy personal income tax on the employment or other personal income of individuals. As such, where an individual meets the above criteria to be considered a UAE Tax Resident, they would generally not be subject to taxation in the UAE on their personal income.

• The new UAE Tax Resident definition gives additional clarity to individuals in respect of their UAE tax residency position under bilateral tax agreements the UAE has entered into with other territories, many of which make reference to the domestic laws of the UAE for determining whether a person is a resident of the UAE for purposes of the treaty. 

• The introduction of the new UAE tax residency rules may require individuals to update their existing CRS documentation with UAE RFIs where there has been a change in the tax residency they originally certified as there is an obligation to declare such changes under most disclaimers signed at the time of account opening.