Tax residency in the United Arab Emirates is a topic that interests many due to the country’s business-friendly climate and tax benefits. However, understanding the nuances of obtaining tax residency can be complex for both individuals and legal entities.
A TRC serves as a legal proof of tax residency, facilitating taxpayers and businesses to claim tax benefits, avoid double taxation, and improve their financial credibility.
In this blog, we will discuss the importance of a Tax Residency Certificate in the United Arab Emirates, its eligibility criteria, application procedure and more.
Key Takeaways
- A Tax Residency Certificate (TRC) helps individuals and businesses in the UAE claim tax benefits and avoid double taxation.
- The UAE issues TRCs for both domestic use and Double Tax Avoidance (DTA) purposes.
- Applying for a TRC requires meeting residency criteria, submitting documents, and getting approval via the FTA portal.
What is a tax residency certificate in UAE?
In UAE, the FTA issues a tax residence license to individuals or entities. It is a formal document that certifies your status as a UAE tax resident. This implies that you pay your taxes in the UAE. The validity period of this document is one year and you have to renew it upon expiration. Thus, the UAE Tax Residence Certificate strengthens your eligibility to claim benefits under a Double Taxation Treaty with another jurisdiction. The TRC is additionally referred to as Tax Domicile Certificate.
Tax applicability and computations for cross-border transactions can be difficult in times of growing international trade relations. Countries are solving this issue with the assistance of tax residence certificate requirements. It serves as formal documentation to prevent double taxation on the same transaction.
Key Benefits of Holding a Tax Residency Certificate in the UAE
The United Arab Emirates (UAE) is known for its beneficial tax environment, making it a desirable location for both businesses and individuals. The following are the key advantages of TRC in UAE:
Avoids Double Taxation
To avoid double taxation, numerous nations have signed DTAA agreements. With a TRC, taxpayers can claim lower tax rates on foreign-earned income, including dividends, royalties, interest, and capital gains.
Acts as a Proof for Financial Transactions
A TRC serves as a legitimate proof of residency for carrying out specific financial operations, like opening bank accounts overseas or engaging in foreign trade. Numerous nations and financial organizations need a TRC to verify your residency status.
Helps in Compliance with Tax Laws
For businesses and individuals, especially NRIs, a TRC helps comply with international tax laws. It provides a basis for filing tax returns in both resident and source countries without facing the burden of double taxation.
Provides Global Market Access
It reduces tax liabilities and increases profitability by providing businesses with more competitive access to global markets.
Strengthens Credibility
Since a tax residency certificate indicates a person or company’s status as a tax resident in the United Arab Emirates, it is thought to increase that person or company’s credibility in the eyes of foreign tax authorities.
Streamlines Import-Export Processes
The TRC might be useful for companies that import and export products. In some circumstances, it might help get exemptions or lower rates on import and export duties.
Reduces Withholding Tax Rates
Certain nations impose withholding taxes on royalties, interest, and dividends given to non-residents. You may be eligible for lower withholding tax rates under DTAAs given you can provide a TRC certifying your residency in the UAE.
Prevents Disputes
The Tax Residency Certificate (TRC), which serves as formal verification of tax residency in the United Arab Emirates, aids in the avoidance of tax-related issues. Without it, tax authorities in other nations may challenge people and corporations, which could result in double taxation or problems with compliance.
Different Types of UAE Tax Residency Certificates
The two primary categories of UAE Tax Residency Certificates (TRCs) are as follows:
1. Domestic TRC
This certificate is mostly used within the UAE. Although it doesn’t directly relate to international tax treaties, it can be useful for several reasons.
2. TRC for DTA purposes (Double Tax Avoidance)
This particular type of Tax Residence Certificate is essential for accessing benefits under the UAE’s agreements with other countries to prevent double taxation. For these overseas transactions, it serves as proof of your tax domicile in the United Arab Emirates.
How to get a tax residency certificate in UAE?
Your nation of tax residency is the jurisdiction where you have a legal responsibility to pay taxes depending on your residence, income, or business activities. This status impacts your tax obligations, exemptions, and responsibilities.
Factors that determine Tax Residency:
- Physical Presence: Most nations, including the UAE, use the 183-day rule for determining residency.
- Permanent Residence: Having real estate in a nation may count toward tax residence.
- Centre of Vital Interests: If your main company and personal ties are in one nation, it may be considered your tax residency.
- Legal and Corporate Registration: Businesses have to determine their tax residency according to their place of formation and management.
How to Submit an Application for a TRC in UAE
Receiving a TRC certificate in the United Arab Emirates is not that typical. Applying and obtaining the TRC is simple if you follow these steps.
- Make sure you fulfil the residency and eligibility requirements.
- Gather all necessary documents and convert them to JPEG or PDF format.
- Use the Federal Tax Authority portal to submit an online application.
- Enter your email address and TRN if you are already a registered taxpayer.
- If you’re a new taxpayer, then put in “NO” and complete the required details.
- Complete the application for TRC registration.
- Upload your documents.
- Pay the application costs.
- The approval process takes four to five days after completion.
- The TRC arrives five to seven working days after approval.
Documents Required for a TRC Application
Required Documents for an Individual
To apply for a Tax Residency Certificate (TRC) as an individual, you must provide the following documents:
- A copy of your passport
- A copy of your residence visa
- A copy of your Emirates ID
- A certified lease agreement or proof of income source
- Bank statements for the last six months from a UAE bank
- A report from the General Directorate of Residency and Foreigners Affairs (GDRFA) or the Identity and Citizenship Authority (ICA) confirming the number of days spent in the UAE over 12 consecutive months
- Any relevant tax forms from the country where the certificate will be submitted
Required Documents for a Legal Entity
To apply for a Tax Residency Certificate (TRC) as a legal entity, you must provide the following documents:
- UAE bank statements for the last six months.
- Audited financial statements and tax returns.
- Trade license.
- Memorandum of Association (MOA).
- Immigration report of company representatives.
If the one submitting the application is a government entity, then a copy of the:
- Government decision or trade license.
- Request letter from the relevant government authority.
How to Download a Tax Residency Certificate?
You can download the tax residency certificate in the following way:
- When the FTA gets your application and money, it approves it within 4-5 days.
- The TRC certificate can then be downloaded by using the FTA website’s portal.
- Additionally, you can apply through the portal and pay an extra 500 AED if you would like the hard copy.
Final thoughts
A Tax Residency Certificate is an important document for UAE residents and businesses seeking to take advantage of double taxation avoidance agreements, as well as for overall banking and compliance purposes. Individuals and businesses can profit from import-export advantages, prevent double taxation, and legally establish their tax resident status in the United Arab Emirates by acquiring these certifications.
A TRC improves international corporate operations by reducing tax liabilities and increasing worldwide credibility. Similarly, individuals can protect their earnings from excessive taxation in their own country. Considering its significance, anyone looking to maximize their tax situation in the United Arab Emirates should consider filing for a Tax Residency Certificate.
