Understanding the new tax residency laws in the UAE
Under the new laws, you will be considered a tax resident in the UAE if you fulfill any of these conditions:
- You spend at least 183 days in the UAE in one calendar year – and this doesn't have to be consecutive.
- You have a permanent home in the UAE, which you use regularly, either yourself or through family members. This condition takes into account the fact that many people may have ties to the UAE but not actually physically reside here for an extended period of time.
- You have a valid UAE residence visa, with which you can reside in the UAE for at least six months out of a year.
If you don't meet any of the conditions above, you may still be considered a tax resident in the UAE. This happens if you spend at least 90 days in a calendar year in the UAE and are not a tax resident of any other jurisdiction.
The new rules came into full effect on January 1, 2023, and apply to everyone, including expats in the UAE and Emiratis living abroad. But what does this actually mean?
As this article is being written, there is still no personal income tax in the UAE. So, if you are now officially recognized as a UAE tax resident, the only thing to really say here would be "congratulations!"—you will not need to file any tax declarations and will be keeping every dirham of your salary.
However, together with the new tax residency laws, the UAE has introduced a corporate income tax of 9%. This means that businesses based in the UAE will now be paying taxes on their earnings, and this is something that will most likely have profound implications for foreign companies in the UAE and the expats they employ.
Some companies will still be exempt from paying corporate tax. Currently, the exemptions include international businesses conducting operations outside of the UAE and companies operating in the “free zones”.
Let's unpack.
A bit of context
While corporate income tax and tax residency regulations are standard in most countries, the UAE is a special case.
Up until 2017, the United Arab Emirates was completely tax-free. Neither companies nor individuals were paying any taxes when they were set up here. This started to change with the introduction of Excise Tax in 2017 and Value Added Tax in 2018. Still, these changes did not really affect the country's business landscape.
Foreign and international companies were drawn to the UAE because of its business-friendly regulations, quickly making the country one of the world's fastest-growing commercial destinations. So, when the UAE announced plans to introduce the corporate tax as of June 1, 2023, it caught a lot of companies off-guard.
Enter provocative news headlines declaring "the tax-free UAE is now dead". But while technically this may be so, the story has more nuance.
The new tax regulations in the UAE are most likely a reaction to the pressure from the Group of Seven (G7) and Group of Twenty (G20), encouraging major economies to abandon no-tax systems. In this context, the country's move to introduce the corporate tax and define tax residency is a move to strengthen its reputation as a reliable commercial hub. It is also a substantial step towards modernizing the tax system.
But now we come back to the same question we asked at the very beginning: what does this mean for expats in the UAE?
How this affects UAE expats
For most expats, the immediate implications of the new tax residency laws are more about official recognition and a possible status change than any additional financial burden. Being a tax resident in the UAE still comes with $0 in personal income tax payments.
But while you will not be paying any personal income tax in the UAE, you may still be liable for tax payments in your home country. It all comes down to where you come from, your country's taxation policies, and whether there are double taxation agreements between your home country and the UAE.
For instance, UK residents are taxed on their worldwide income (non-residents are only taxed on the income they receive in the UK). However, the UK also has a DTA with the UAE, which means that the income earned in the UAE may be exempt from UK taxes.
UAE expats who work for foreign or international companies may be more affected by the changes. With the new corporate tax affecting their earnings, some companies may be reassessing their operations in the UAE. This has the potential to affect the job market as well as expat salary structures in the country.
Artem, who has just relocated to the UAE as a developer for an IT company, is concerned: “My company has just opened its first office in Dubai, and the costs are high, from what I know. Our office is on Sheikh Zayed Road, so we pay a lot in rent. And now, with the new corporate tax, I am not sure that the project will still be financially viable. And, sure, I will be affected directly, as I may need to relocate again.”
It may be too early to make any long-standing predictions about how the new tax laws will affect UAE expats. The absence of personal income tax continues to make the county an attractive destination for many. The new tax residency criteria give clear guidelines for expats to benefit fully from tax-free personal income status.
