Federal Decree-Law No. 47/2022, governing UAE Corporate Tax Law, defines Resident Persons for Corporate Tax purposes under Article 11. Residency status affects how a person is taxed in the UAE and whether companies can qualify for tax group benefits. This article explains how Resident Persons are defined under UAE Corporate Tax Law, the residency requirements for parent companies and subsidiaries under Article 40, and how foreign tax residency can affect Tax Group eligibility.
How are Resident Persons defined?
The following are treated as Resident Persons under UAE Corporate Tax Law:
| Category | Description |
| UAE Juridical Persons | A juridical person incorporated, established, or otherwise recognised under UAE law, including a Free Zone Person. |
| Foreign Juridical Persons Managed from the UAE | A foreign juridical person that is effectively managed and controlled in the UAE. |
| Natural Persons Conducting Business | A natural person who conducts a Business or Business Activity in the UAE, subject to the relevant Cabinet Decision rules. |
| Other Persons | Any other person that may be determined by a Cabinet Decision at the suggestion of the Minister. |
Physical Presence Tests for Individual UAE Tax Residency
The physical presence tests apply mainly to individual UAE tax residency and Tax Residency Certificate matters. They are separate from the Corporate Tax rules for companies, but they are relevant where an individual needs to confirm UAE tax residency status.
| Test | Requirement |
| Centre of Interests Test | The UAE is the individual’s usual or primary place of residence and the centre of their financial and personal interests. |
| 183-Day Physical Presence Test | The individual is physically present in the UAE for 183 days or more in a consecutive 12-month period. |
| 90-Day Physical Presence Test | The individual is physically present in the UAE for 90 days or more in a consecutive 12-month period and is a UAE citizen, UAE resident, or GCC national who has a permanent place of residence in the UAE or carries on employment or business in the UAE. |
These day-count tests are not the same as the Corporate Tax test for a natural person. For Corporate Tax, a natural person is relevant where they conduct a Business or Business Activity in the UAE, subject to the applicable Corporate Tax rules.
Treatment of Business Entities/Companies as Resident
Business entities and companies are generally treated as Resident Persons if they meet one of the following conditions:
| Category | Description |
| Incorporation | The entity is incorporated, established, or otherwise recognised under UAE laws. |
| Effective Management and Control | The entity is incorporated in a foreign jurisdiction but is effectively managed and controlled in the UAE. This includes where key strategic and management decisions are made in the UAE. |
Prerequisite for Subsidiaries and Parent Companies (Article 40)
Under Article 40, a parent company and its subsidiaries must satisfy the Tax Group conditions before they can form or join a Tax Group:
| Category | Description |
| UAE Residency | The parent company and each subsidiary must be Resident Persons for UAE Corporate Tax purposes. |
| Juridical Person Requirement | The parent company and each subsidiary must be juridical persons. Natural persons cannot form a Corporate Tax Group. |
| Foreign Tax Residency Review | If an entity is also treated as tax resident in another country under an applicable tax treaty, its UAE Corporate Tax position and Tax Group eligibility should be reviewed carefully. |
Compliance with Residency Requirements by Parents and Subsidiary Companies
A company qualifies as a UAE Resident Person if it satisfies one of the criteria below:
| Category | Description |
| Company Incorporation within the UAE | The company is incorporated, established, or otherwise recognised under UAE law. This includes mainland companies and Free Zone entities. |
| Effective Management and Control in the UAE | A foreign-incorporated company can be treated as a UAE Resident Person if it is effectively managed and controlled in the UAE, meaning key strategic and management decisions are made in the country. |
| Tax Treaty Position | Where a company has a connection with another jurisdiction, any applicable Double Taxation Avoidance Agreement should be checked to confirm how tax residency is determined for treaty purposes. |
Subsidiary Companies
A subsidiary can be included in a UAE Corporate Tax Group only if it satisfies the required Article 40 conditions:
| Category | Description |
| Resident Person Status | The subsidiary must be a Resident Person for UAE Corporate Tax purposes. |
| Juridical Person Status | The subsidiary must be a juridical person, such as a company incorporated in the mainland or in a Free Zone. |
| Free Zone Status | The subsidiary cannot be a Qualifying Free Zone Person if it is to be included in a Tax Group. |
| Ownership and Control | The parent company must hold at least 95% of the subsidiary’s share capital, voting rights, and entitlement to profits and net assets. |
Tax Grouping Merger Restrictions
To be able to form a Tax Group, the following requirements must be fulfilled:
- Resident Person Status: The parent company and each subsidiary must be Resident Persons.
- Juridical Person Requirement: The Tax Group members must be juridical persons.
- Non-Exempt Status: Neither the parent company nor the subsidiary can be an Exempt Person, subject to the specific Government Entity ownership exception under Article 40.
- Qualifying Free Zone Person Restriction: Neither the parent company nor the subsidiary can be a Qualifying Free Zone Person.
- Subsidiary Ownership Requirement: The parent company must hold at least 95% of the subsidiary’s share capital, voting rights, and entitlement to profits and net assets.
- Unified Fiscal Year & Consistent Accounting Standards: The parent company and subsidiary must have the same Financial Year and use the same accounting standards.
Loss of UAE Tax Group Eligibility
If a parent company or subsidiary no longer satisfies the UAE Corporate Tax residency or Article 40 conditions, it can affect the Tax Group position:
| Issue | Description |
| Loss of Resident Person Status | A company that no longer qualifies as a Resident Person may no longer be eligible to remain in a UAE Corporate Tax Group. |
| Qualifying Free Zone Person Status | A Qualifying Free Zone Person cannot be included in a Tax Group under Article 40. |
| Change in Ownership or Structure | If the 95% ownership, voting rights, profit entitlement, or net asset entitlement conditions are no longer met, the subsidiary may need to leave the Tax Group. |
Seek the Expert Services of Premier Tax Consultants in UAE
Businesses are advised to seek the expert services of premier Tax Consultants in UAE to determine their Corporate Tax position, confirm Tax Group eligibility, and ensure compliance with the Corporate Tax Law. Contact us today and we shall be glad to assist you.
FAQs
What is the meaning of “resident person” as defined in the UAE Corporate Tax Law?
- A juridical person incorporated, established, or otherwise recognised under UAE law, including a Free Zone Person.
- A foreign juridical person that is effectively managed and controlled in the UAE.
- A natural person who conducts a Business or Business Activity in the UAE, subject to the relevant Cabinet Decision rules.
- Any other person determined by Cabinet Decision at the suggestion of the Minister.
How is tax residency status defined for companies in the UAE?
- It is incorporated, established, or otherwise recognised under UAE laws, or
- It is incorporated in a foreign jurisdiction but effectively managed and controlled in the UAE.
What is a Tax Group, and how does residency affect it?
Can a Free Zone enterprise be included in a Tax Group?
What happens if a Tax Group member's residency status changes?
What are the consequences of changing tax residency to a different jurisdiction?
- Loss of eligibility to form or remain in a UAE Corporate Tax Group.
- Changes to how the company is taxed under an applicable Double Taxation Avoidance Agreement.
- Additional tax and compliance obligations in the other jurisdiction.
What benefits do UAE tax residents receive from Double Taxation Avoidance Agreements (DTAAs)?
What are the repercussions of losing UAE tax residency?
- Loss of eligibility for UAE Tax Group membership.
- Different Corporate Tax treatment in the UAE.
- Additional tax exposure and compliance obligations in another jurisdiction.
How does UAE corporate tax compare to other countries?
What should businesses consider before changing their tax residency?
- Whether the change affects UAE Resident Person status.
- Whether the company can still form or remain in a UAE Tax Group.
- The tax rules of the other jurisdiction.
- Whether a DTAA applies and how it treats residency and business profits.
- Compliance obligations such as transfer pricing, reporting, and related party rules.
Can a foreign parent company be considered a UAE tax resident?
Meet Abrar Ahmad (MPhil Finance) on Corporate Tax UAE. Leveraging 10+ years of mastery in VAT consulting, accounting, and driving business growth.