Are you a Dubai-based business looking for ways to minimise your tax burden? If so, it may be worthwhile obtaining a UAE tax residency certificate. This article will provide you with all the information you need to know about this process. We will discuss what is required to obtain the certificate, as well as the benefits of having one. So, whether you are just starting out as an entrepreneur in business or have been operating in Dubai for some time, read on to find out more about the UAE tax residency certificate.
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About The UAE Taxation Landscape
Global investors are drawn to the UAE’s varied economy, and its attractive tax framework is one of the many benefits that companies consider when evaluating it as an investment destination. Boasting one of the world’s lowest corporate tax rates at just 9%, the UAE continues to be a desirable hub for businesses, investors and entrepreneurs globally.
However, at the end of 2022, the Ministry of Finance updated the UAE corporate tax legislation, effective from June 1, 2023. These recent changes encompass a new corporate tax scheme with the following goals to achieve:
- Secure its prominence as a top international enterprise and investment hot spot.
- Expedite its progress and development schemes to reach its envisioned objectives.
- Reaffirm the commitment to adhering to worldwide tax transparency standards, in addition to hindering any risky tax behaviour.
It’s important to remember, even though international residency is possible, taxation remains a one-country affair.
The UAE has signed double taxation agreements with numerous countries globally to guarantee that taxpayers are not subject to being taxed twice in two different nations. Moreover, the greater part of companies based in the UAE are exempt from paying income tax.
To take advantage of the double taxation agreements in the UAE, companies or individuals must obtain a Tax Domicile Certificate (TDC), more commonly referred to as a Tax Residency Certificate (TRC).
What is a Tax Residency Certificate (TRC)?
A Tax Residency Certificate, (or a Tax Domicile Certificate), is a document that verifies your tax obligations to one country and grants you access to the advantages of double taxation agreement provisions. This document simply confirms that your tax obligations apply to one country only (your country of residence). In the UAE, Tax Residency Certificates are issued by the Ministry of Finance and legally remain valid for twelve months.
Any company that has been established in the UAE mainland or any Freezone for at least a year is eligible to receive a UAE Tax Residency Certificate/Tax Domicile Certificate. However, offshore companies cannot apply and must instead obtain a tax exemption certificate as an alternative.
Whereas, an individual who has been living in the UAE for an entire six months or more is qualified to receive a Tax Residency Certificate. This is especially convenient if you come from a country with no double taxation agreement signed between it and the United Arab Emirates. Just make sure that your valid residency permit has been active for at least 180 days before submitting an application.
Benefits of a UAE Tax Residency Certificate
The United Arab Emirates government grants certificates to businesses and individuals, allowing them to enjoy the advantages of both corporate and individual taxation.
Obtaining a TRC will offer you numerous advantages, including:
- Withholding double taxation
- Averting excess levies through import-export processes
- Gaining legal recognition as a company or individual while present in the UAE.
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Steps to Obtain a UAE Tax Residency Certificate
- Go to the Ministry of Finance (MoF) website and create an account.
- Complete the TRC application form and attach all relevant documents in PDF or JPEG formats.
- After your application is accepted, make your payment online.
- After you’ve made the payment, an on-site courier will bring your certificate right to you.
Documents Required For UAE Tax Residency Certificate For a Company
- Copy of MOA
- Copy of trade license
- Copy of passports and ID for owners/partners
- Copies of residence permit for applicants
- Copy of audited tax/financial records
- A recent bank statement encompassing the past six (6) months.
- Lease agreement in the UAE
- Any other relevant or supportive documentation for your business
Documents Required For UAE Tax Residency Certificate For an Individual
- Copy of passport and Emirates ID
- Copy of residence visa
- A recent bank statement encompassing the past six (6) months.
- A report from the General Directorate of Residency and Foreigners Affairs confirming the duration of the person’s stay in the UAE (minimum 180 days).
- Evidence of income (eg: salary certificate or a trade license).
- A lease agreement in the UAE (registered in Ejari etc).
- Tax forms from the country where the certificate needs to be submitted.
When You’ll Receive Your Tax Residency Certificate
The timeframe for securing and updating your UAE tax residency certificate occurs in three stages:
- Pre-approval stage: This stage 4-5 business days with the UAE Federal Tax Authority. All you need is a completed application form and all necessary documents, and they’ll confirm whether everything was accurately uploaded.
- Issuance of Certificate: After the UAE Federal Tax Authority approves and confirms your application, you can expect to receive your Certificate within 5 business days following payment of applicable fees.
- Validity of Certificate: The Tax Residency Certificate/Tax Domicile Certificate has a limited lifespan of one year and must be renewed yearly, adhering to the required submission and renewal process.
Current Compliance Requirements For UAE Businesses
From June 2023, every organisation in the UAE must take the following steps to meet their new tax requirements:
- Register for corporate taxation
- Maintain accurate financial documentation
- File a tax submission with the Federal Tax Authority (FTA)
Current Corporate Tax Rates in The UAE
The Ministry of Finance has implemented a three-tier taxation plan, so businesses can expect different rates based on their annual net profits:
- Smaller companies with annual profits under AED 375,000 will be exempt from any taxes.
- Companies that exceed this amount are subject to 9% taxation.
- Larger multinationals and enterprises that have total global revenue exceeding EUR 750 million (AED 3.15 billion) must adhere to Pillar Two of the OECD Base Erosion and Profit Shifting project for appropriate tax regulations.
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Who Must Pay Corporate Tax in the UAE?
As previously mentioned, the Ministry of Finance has declared that any corporate bodies operating in the UAE will be bound by this new taxation policy initiated on or after June 1, 2023, for their initial fiscal year and subsequent years.
For instance, businesses that observe their financial year beginning June 1 will be taxed from the same date in 2023.
Businesses that have a fiscal reporting year beginning July 1 will be subject to taxation as of July 1, 2023. This is the first financial period commencing after June 1, 2023, for these enterprises.
Businesses that follow a financial year beginning on January 1 will be subject to taxation from the start of their first fiscal period following June 1, 2023, which is January 1, 2024.
Corporate Tax for Freelancers
According to the Ministry of Finance, individual income is exempt from corporate taxation.
To serve as an independent contractor or freelancer in the UAE, you will need to obtain a professional license which automatically places you into their taxation system.
If you are making over AED 375,000 as a freelancer annually, then you will owe 9% corporate tax for the appropriate income amount. That is unless, of course, you qualify for one of the exemptions that’s accessible to you.
Corporate Tax for Business in a Free Zone
In order to honour its commitment to a beneficial business atmosphere in the free zones, the UAE government has created an exemption for businesses operating within them. If you operate a business in any of the free zones, provided your company abides by your own regulations as well as those laid out in corporate tax legislation, you may be eligible for a 0% rate on corporate tax.
As a business owner, if you want to remain eligible to receive the 0% tax rate, you must comply with all of the conditions within your respective free zone’s regulations. If these stipulations are not met (for example, if your registered company trades with customers outside its jurisdiction on the mainland), your exemption may be revoked and you could become liable for up to 9% in corporate taxes.
Even if you are eligible for a 0% tax break, as a free zone business, you must still register your corporate taxes and maintain meticulous accounting records. Furthermore, an annual filing of taxation with the FTA is required in order to remain compliant.
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Is Your UAE Business Eligible For Further Exemptions Or Tax Deductions?
Aside from the previously established 0% tax rate for free zone authorities, there are further exceptions that may apply to some entities in the UAE. If your enterprise happens to be included in this group, you could potentially reap the benefit of being completely exempt from corporate taxes.
For SMEs, the Small Business Relief rule is particularly beneficial. This regulation states that corporations earning a total revenue under an unfixed limit will not have to pay corporate tax. While this amount has yet to be declared by the ministry, it should be made clear in the near future. Even if a business is eligible to claim the Small Business Relief, it must still abide by corporate tax regulations and keep up-to-date accounting records in order to correctly file an annual tax submission with the FTA.
MOF has declared that dividends, profit distributions, and capital gains from the sale of shares in a subsidiary company owned by the taxpayer are usually exempt from taxation.
Further exemptions apply to the following UAE industries/entities:
- Government entities, from federal to local levels, including offices, departments and divisions.
- Companies in the UAE conducting mining activities or similar operations in natural resources are subject to taxation at an Emirate level, and are therefore exempt from any additional obligations regarding corporate taxation.
- Organisations striving to create social impact must register as a charity or social enterprise with the Ministry of Finance (MOF). To be approved, these organisations must first attain formal clearance from relevant governing bodies before making an application for MOF registration.
- Government or regulated private organisations that work with pension and retirement funds.
- Real Estate or any other regulated investment fund, similar to a charitable organisation, entities must apply for their official exemption approval through the Ministry of Finance (MOF) and Federal Tax Authority (FTA).
Companies With Foreign Branches Are Eligible For Tax Deductions
The UAE government is providing foreign company branches established in the country with two distinct options:
- Organisations with foreign branches have the option to apply for a Foreign Tax Credit that reimburses them for the taxes paid abroad, or;
- Firms are able to request an exemption of any profit received from their overseas subsidiaries.
Tax Deductions on Financing Costs
As a business, you can deduct the financing and interest costs from your taxable income. But there’s an upper limit to how much of those expenses are allowed for deduction. That is, no more than 30% of earnings before taxes, interest payments, depreciation and amortisation.
To avoid businesses from capitalising on the different tax treatments of equity and debt to reduce taxable income through more interest expenditure, this cap has been put in place. Unchecked borrowing may lead companies to incur excessive levels of debt.
UAE Tax Residency Certificate – FAQs
How do I obtain a UAE tax residency certificate?
You can obtain your UAE Tax Residency Certificate from the Federal Tax Authority (FTA) by submitting an application through their website. The process to apply for the certificate may vary depending on your type of industry, or whether you’re an individual or a company.
To be eligible for the TRC as an individual, you must have been residing in the United Arab Emirates for more than six months. Corporations that have been formed for more than twelve months and are orderly monitored from the United Arab Emirates may qualify to receive a Tax Residency Certificate.
To guarantee that your visa is in order, it’s wise to enlist the help of an experienced business consultant. The ideal expert will ensure a smooth application process and bolster the chances you’ll get everything right and completed correctly on the initial attempt.
What corporate tax rates apply in the UAE?
The corporate income tax rate for companies registered and incorporated within the Dubai mainland or any of the emirate’s free zones is 0%. Businesses located outside of the UAE but doing business within it may be subject to a different rate, depending on the applicable international tax treaty. Companies can contact their local FTA office for more information.
What strategies will the UAE government employ to implement corporate taxation?
The Ministry of Finance has granted the Federal Tax Authority the power to oversee taxation and serve as a regulatory authority. Businesses are required to submit their taxes annually, alongside their financial statement. Medium and large businesses in the UAE adhere to IFRS financial reporting methods. Fortunately for them, the FTA offers multiple options when submitting taxes that make this process easy and straightforward.
Is corporate tax equivalent to value-added tax (VAT)?
When the UAE government introduced corporate tax, many companies were mistaken in thinking it was comparable to Value Added Tax (VAT). However, these two taxes are vastly different from each other.
VAT is a tax on the consumption of products and services, paid by customers at the time of purchase. UAE businesses gather Value Added Tax (VAT) payments from their patrons when providing a product or service and then submit the collected amount to the government.
Whereas, corporate taxes are imposed upon businesses’ taxable profits. Every year, companies must pay corporate tax on their net profits to the government.
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Get Expert Advice From DUQE
Understanding UAE corporate tax laws and the benefits of obtaining a tax residency certificate are important elements to the ultimate success of your business. As a business owner in Dubai, you want to maximise your bottom line while enjoying everything this bustling city has to offer.
Dubai is a hub of economic activity, providing an ideal landscape for budding entrepreneurs to thrive. It’s no surprise that startups are drawn to this vibrant place!
DUQE can help make the process of starting your business in Dubai easy and straightforward. We offer a wealth of resources and ongoing support that will ensure your business has the potential to reach its fullest potential in the global market.
Get in touch with us today to discover how we can help you on your journey to making an impact in Dubai!