UAE Tightens Tax Residency Rules: What Expats and Businesses Need to Know

The UAE has unveiled key updates to its tax residency framework, marking a milestone in the country’s broader effort to modernize its tax system and align with international standards on transparency and compliance. For expatriates and foreign investors, these changes provide clarity while also introducing important compliance expectations.

At the center of these regulatory changes are two key decisions:

• Cabinet Decision No. 85 of 2022, which took effect on March 1, 2023, and defines the criteria for establishing tax residency in the UAE
• Ministerial Decision No. 247 of 2023, which outlines how individuals and legal entities can obtain a Tax Residency Certificate, a document required to benefit from the UAE’s extensive network of double taxation agreements (DTAs)

Who Qualifies as a UAE Tax Resident?

The new rules apply to both individuals and legal entities, with clearly defined criteria:

For Legal Persons:

• Must be established or recognized under UAE law
• Foreign branches are not considered tax residents

For Natural Persons (Individuals):

There are three main pathways to qualify:

1. Primary or Habitual Residence Test
   The person’s main home and place of financial and personal affairs is in the UAE, under conditions set by the Minister of Finance
2. Physical Presence Test – 183 Days
   The person is physically present in the UAE for at least 183 days during any 12-month period
3. Additional Criteria – 90 Days with Residency Links
   The individual is present in the UAE for at least 90 days within a 12-month period and meets the following:
   • Holds UAE nationality, nationality of a GCC country, or a valid UAE residence permit
   • Has a permanent residence or employment in the UAE

Why These Changes Matter

The updated framework is designed to:

• Provide expatriates and investors with a transparent and accessible route to establish tax residency
• Make it easier to apply for Tax Residency Certificates and access the UAE’s 130-plus double taxation treaties
• Support international standards in tax compliance and economic substance

According to legal expert Dr. Hassan Elhais of Awatif Mohammad Shoqi Advocates & Legal Consultancy, the update is both welcome and overdue. “It brings clarity, structure, and global alignment to a jurisdiction that is increasingly important in cross-border tax planning,” says Dr. Elhais.

Known for his work across criminal, corporate, and commercial law, Dr. Elhais emphasizes the importance of maintaining transparency in tax affairs, especially as global scrutiny increases.

What Should Expats and Companies Do Now?

Tax professionals recommend the following actions:

• Review your physical presence history and immigration records
• Prepare all documentation needed for a tax residency application
• Ensure that contracts, housing, and business structures reflect UAE-based control and economic substance
• Apply for a Tax Residency Certificate from the Federal Tax Authority if eligible

Multinational companies in particular can use the new rules to support transfer pricing positions and minimize exposure to double taxation, especially when restructuring regional headquarters or supply chains through the UAE.

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