Page 7 - ICAI UAE TAX UPDATE_October 2024

3.2 Corporate Guide on Tax Resident and Tax Residency Certificate

The Federal Tax Authority (FTA) has issued a guide and commercial decisions” that are necessary for the
“TPGTR1 - Tax Resident and Tax Residency Certificate” conduct of the juridical person’s Business as a whole
providing insights on Rules for determining a natural are, in substance, made.
person is tax resident based on UAE laws and double
taxation avoidance agreements during the month of If a juridical person’s key management and commercial
October 2024. decisions affecting its Business as a whole are made in
multiple locations, the place of effective management
Concept of Tax Residence and control will be the location where those decisions
are regularly and predominantly made.
A Person may be liable to tax in any jurisdiction where
the Person meets the criteria to be a tax resident. A When determining who makes the key management
Person that has been subject to tax in both jurisdictions and commercial decisions , it is necessary to consider
should be able to claim relief from double taxation, the Persons who substantially make those decisions.
such as requesting a withholding tax refund. To do this,
a Person may be required to provide a Tax Residency Three tests to identify the Person (or Persons) who
Certificate (“TRC”) issued by a jurisdiction. make key management and commercial decisions are
considered below:
Resident Person under UAE Corporate Tax
• The board of directors’ test - Where the board
A juridical person that is a Resident Person is subject to of directors have the legal power to make the key
Corporate Tax on its Taxable Income derived from inside management and commercial decisions of a juridical
and outside the UAE. A Non-Resident Person, whether person
a juridical person or natural person, is generally only
subject to Corporate Tax on income sourced in the UAE. • The delegation of authority test - In some cases, the
Persons who have been granted the legal authority
The Corporate Tax rules for a juridical person also apply may not, in reality, be actively involved in the decision-
to a Free Zone Person. For tax residency purposes, making process or governance of the juridical person
where a branch of a foreign company is established in or may have delegated some or all of their powers to
a UAE Free Zone, the foreign company is considered to others.
be a Non-Resident Person for Corporate Tax purposes.
• The shareholders activity test - Depending on the level
If a juridical person is not incorporated in the UAE but of actions taken by a shareholder, these can amount in
is effectively managed and controlled in the UAE, it is practice to effective management and control.
considered a Resident Person for Corporate Tax purposes. A juridical person that is a Resident Person is taxed on
It is understood as the place where “key management all income earned, irrespective of whether the income
and commercial decisions” that are necessary for the is sourced in the UAE or a foreign country. Natural
conduct of the juridical person’s Business as a whole persons will only be treated as a Resident Person if they
are, in substance, made. conduct Business or Business Activity in the UAE, and
the Turnover from such Business or Business Activity
The place of effective management and control is exceeds AED 1 million in a Gregorian calendar year.
understood as the place where “key management
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