Federal Decree-Law No. 47/2022, governing UAE Corporate Tax , defines “resident persons” as individuals and legal entities that have a significant economic and/or physical presence to the UAE. The determination of residency status directly influences business tax obligations and eligibility for tax group benefits. This article will provide insights into the residency criteria as per Article 3 and explains how the recent amendments, along with the parent-subsidiary tax group UAE structure must comply to enjoy benefits under the UAE Corporate Tax law.
How are Resident Persons defined?
Following are the categories of Residents as outlined below:
| Category | Description |
| Habitual Reside | Persons who habitually reside in the United Arab Emirates. |
| Physical | Persons who are present in the United Arab Emirates for more than 183 days in a year of study. |
| Employment | With a valid work permit, the individual is employed in the UAE. |
| Juridical Persons/Companies/Other Business | Legal entities and businesses operating within the UAE. |
Treatment to business entities/companies as resident: –
Business entities and other Companies are deemed residents if they fulfill the following:
| Category | Description |
| Incorporation | Are incorporated under UAE laws. |
| Effective Management | Have their central management and control within the UAE. This includes Crucial decisions, operational control, and board meetings take place. |
Prerequisite for Subsidiaries and Parent Companies (Article 40)
Each parent company and the set of subsidiaries is, according to Article 40, required to satisfy all the residency rules set for forming or joining a tax group:
| Category | Description |
| UAE Residency | Both entities are required to be resident persons under the laws of UAE. |
| Non-Residency in Other Countries | Self-sustaining entities, and those which may or may not be considered under the scope of an international treaty where the UAE is one of the signatories, cannot be classified as a tax resident in a foreign country. |
Compliance with Residency Requirements by Parents and Subsidiary Companies
A company qualifies to be classified a resident in UAE if it satisfies one or more of the raised criteria below:
| Category | Description |
| Company Incorporation within the UAE | The company is registered or incorporated according to UAE laws for the purpose of complying with local laws and standards of corporate governance. This categorization makes the company a UAE-based company from a legal as well as tax perspective. |
| Place of Effective Management | The Place of Effective Management (POEM) is in the UAE, meaning that strategic decision-making, executive functions, and control over operations are primarily performed in the country. This is what establishes tax residency status. |
| Self-Sustaining Foreign Firms | The company is not considered a tax resident of any foreign country under international arrangements. It stands independently, not subject to foreign taxation except where expressly so provided for in an arrangement. |
Subsidiary Companies
These companies are deemed residents of the UAE if:
| Category | Description |
| Company Incorporation within the UAE | Legal Framework: They are incorporated within a United Arab Emirates legal framework, free zones such as JAFZA and DMCC. |
| Tax Jurisdiction Compliance | They fall under free zones and non-exempt persons from the UAE tax jurisdiction. |
| Place of Effective Management | Operational Control: Control and management of the entity is conducted and performed in the territory of UAE. |
Tax Grouping Merger Restrictions
To be able to form a tax group, the additional requirements below must be fulfilled:
- Non-Exempt Status: The parent or the subsidiary cannot be categorized as exempt persons.
- Subsidiary Ownership Requirement: The parent firm shall have a minimum of 95% subsidiary share, voting, and profit participation.
- Unified Fiscal Year & Consistent Accounting Standards: In the group consolidation, all members shall have the same fiscal year, with identical accounting principles.
Loss of Advantages of UAE Tax Systems
The new tax residency status outside the UAE can result in losing the advantages of:
| Tax Benefit | Description |
| 0% Corporate Tax | Zero percent corporate tax is accessible to free zone qualified entities. |
| No Personal Income Tax | The UAE does not have the practice of levying income taxes on individual citizens, unlike other nations. |
| Non-Existence of Capital Gains or Inheritance Taxes | Such exemptions render the UAE one of the most preferable tax jurisdictions around the globe. |
Seek the Expert Services of Best Corporate Tax Consultants in UAE
To ensure your business qualifies for Tax Group eligibility UAE and remains compliant with the evolving tax framework, Businesses are advised to seek the expert services of Corporate Tax Consultants in Dubai UAE to seamlessly determine corporate tax taxability and ensure compliance with the corporate tax law.
Contact us today and we shall be glad to assist you.
FAQs
Who qualifies as a Resident Person under UAE Corporate Tax?
A Resident Person is a legal entity incorporated in the UAE or effectively managed and controlled from the UAE.
Can Free Zone entities be considered Resident Persons?
Yes, Free Zone entities can qualify if they meet the criteria set by the UAE Corporate Tax Law.
What is a Tax Group under UAE Corporate Tax?
A Tax Group allows two or more Resident Persons to be treated as a single taxable entity if they meet ownership and control conditions.
What are the benefits of forming a Tax Group?
It simplifies compliance, allows consolidation of profits and losses, and can reduce the overall tax liability.
