Understanding Tax Residency Certificate: Why it matters for your business

The importance of Tax Residency Certificate (TRC) in Dubai, UAE

A ‘resident’ status gives you the right to live in a country physically. But a ‘tax resident’ or ‘resident for tax purposes’ status means you pay taxes in that country. It is essential to know the Tax Residence of an individual or entity in the case of cross-border transactions and double taxation cases. To prove an entity or individual’s Tax Residence in UAE, the country introduced the law for the Tax Residence Certificate. This article will explore more about Tax Residence Certificates and their importance.

What is a tax residency certificate in UAE?

The Federal Tax Authority (FTA) of UAE issues a tax residence certificate to individuals or entities. It is an official document to prove that you are a tax resident of the UAE. It means that you pay your taxes in UAE. The validity of this certificate is for one year; you need to renew it on expiration. Thus, the UAE Tax Residence Certificate supports your application for access to benefits under Double Taxation Treaty with another jurisdiction. The Tax Residency Certificate is also known as Tax Domicile Certificate.

Tax applicability and calculations for cross-border transactions are challenging in times of increasing international trade relations. Countries are solving this problem with the help of tax residence certificate requirements. It is a document used as official proof to avoid double taxation on the same transaction.

What makes you a tax resident in UAE?

In the case of individuals, the fulfilment of one of the following conditions makes them tax residents in UAE:

The primary place of residence and the centre of financial and personal interests are in UAE
In the last 12 months, they had a physical presence in the country for 183 days or more
In the last 12 months, they had a physical presence in the country for 90 days or more and are a UAE citizen, expatriate resident, or GCC national with:
- A permanent residence place in UAE or
- Carrying out business or job in UAE

In the case of legal entities, the fulfilment of one of the following conditions makes them tax residents in UAE:

Establishment, formation, or recognition of the entity in UAE (it excludes a UAE branch registered by a foreign entity)
Recognition of the entity as a tax resident under the applicable UAE tax laws
A company established outside UAE can be a tax resident in UAE if its effective management and control is in UAE

Hire Tax Residency UAE to ease your burden of obtaining a Tax Residency Certificate.

What is the purpose of a tax residence certificate?

Double Taxation Avoidance Agreements are taxation arrangements between two or more countries. Under this arrangement, you are not required to pay double taxes on the same income. If you are a resident of one country and earn income in another, you will be taxed only once. UAE has 137 Double Taxation Agreements (DTAs) with other countries.

So, taxation happens only in your home country or the host country. A tax residence certificate proves your tax residence in one country, leading to paying taxes there. You can show this certificate as proof to avoid paying tax on the same income in another country.

Thus, legal or natural persons in UAE must prove their tax residence in UAE with such a tax residence certificate. It means they are subject to tax in UAE and are not required to pay taxes in other countries. By showing your tax residence certificates, you can avoid paying taxes on the same income twice in countries with which UAE has signed DTAAs.

In a way, tax residence certificates make cross-border trade smoother. It makes the taxation process for cross-border transactions easier and simpler.

But an important point to note is that the provisions of a tax treaty apply while determining the tax residence of an individual or entity. Generally, such tax treaties imply that the legal or natural person is not taxed twice. But with the presence of this certificate, you have proof of your tax residence in UAE.

Do you need help obtaining the Tax Residency Certificate?

Obtaining a tax residency certificate requires the applicant to fill out the form and submit relevant documents. That might lead to errors, delays, or duplication of work if the FTA does not accept the form. The best solution, in this case, is to outsource the work to an expert tax services provider in UAE.

Tax Residency UAE is a prominent firm in UAE providing entities and individuals tax-related support. We help you with the application process and documentation for tax residency certificates. We resolve all your doubts about tax residency and help you prepare the documents for its application. We ensure error-free and complete application and document submission to obtain the TRC as early as possible.