In early 2024, a regional holding company moved its senior management meetings to Dubai. The CEO believed this shift would give the group a strategic advantage. What he didn’t expect was a letter from a tax advisor in Abu Dhabi. The letter warned of an issue that had caught many businesses off guard: tax residency.
The UAE corporate tax regime, introduced under Federal Decree-Law No. 47 of 2022, brought tax residency into sharp focus. Before this law, residency was mostly relevant for individuals seeking personal tax residency certificates. Now, both legal persons and individuals must understand how their residency status affects their tax obligations.
For juridical persons, the law is precise. Article 11 of the Decree-Law defines a resident person to include any entity incorporated in the UAE or recognized under UAE law. This includes companies formed in the mainland or in a Free Zone. But residency does not stop there. An entity formed abroad can also be treated as a resident in the UAE if it is effectively managed and controlled in the UAE. This concept of Place of Effective Management, known as POEM, is critical.
Cabinet Decision No. 85 of 2022 and Ministerial Decision No. 27 of 2023 clarify the POEM test. If the key decisions on strategic matters are made in the UAE, then the foreign company may be treated as a UAE resident for corporate tax purposes. It’s not only about where the board sits once a year. It’s about where the day-to-day high-level direction comes from. If the CEO and CFO are based in Dubai, and if board meetings are routinely held in Abu Dhabi with decisions taken and implemented from there, the UAE tax authority may treat the entity as a resident.
For natural persons, the test is different. Cabinet Decision No. 85 of 2022 sets out the residency criteria. A person is considered a tax resident if they have their primary home in the UAE or are physically present for at least 183 days in a 12-month period. There’s a secondary threshold too: a person may be considered resident even with only 90 days of presence if they have UAE employment, own a business in the country, or have strong family and economic ties.
This has consequences. A natural person who meets the residency test is not automatically subject to corporate tax. But if that person conducts a business activity in the UAE and earns income above AED 1 million, then Article 11(6) of the Decree-Law kicks in. They must register and pay corporate tax on business income.
Then comes the issue of state-sourced income. A non-resident juridical person is not entirely outside the tax net. Article 13 of the Decree-Law provides that income is taxable if it is sourced from the UAE. This includes income from UAE assets, services performed in the country, or contracts wholly or partly executed in the UAE. Even if the company has no permanent establishment, Article 45 requires withholding tax to apply on certain types of state-sourced income paid to non-residents, though the rate is currently set at 0%.
As the holding company’s board realized, shifting decision-making functions to the UAE brought benefits, but it also meant that the company may now be considered a tax resident. This triggers filing obligations, transfer pricing documentation, and exposure to corporate tax on global income. For individuals, misjudging the days spent in the country or misunderstanding the scope of “business income” can lead to non-compliance.
In the post-decree environment, ignoring residency rules is no longer an option. Residency defines your tax world. The borders are not just geographical anymore. They follow where your decisions are made, where your life is based, and where your business breathes.
Email: furqan@fiscalandfintech.com
This article is provided for general informational purposes only and does not constitute legal, tax, or financial advice. The contents are based on the laws and regulations in force in the United Arab Emirates as of the date of publication, including Federal Decree-Law No. 47 of 2022, Cabinet Decision No. 85 of 2022, and Ministerial Decision No. 27 of 2023. Laws and interpretations may change, and the application of tax laws depends on individual circumstances. Readers should not act or refrain from acting based on any information in this article without seeking professional advice tailored to their situation. The author accepts no liability for any loss arising from reliance on this article.
