Speaking of tax residence abroad, one should distinguish two different concepts – the foreign citizenship and the tax residence. You can be a citizen of one country while being a tax resident in another one.
Please note that having a resident visa of a country abroad does not always mean that you are the tax resident there.
What is a “tax residence”? This concept is applied both to individuals and legal entities. It determines the relation of an individual or an entity to a particular country. From the point of view of a tax law, a resident is a person who pays taxes to a particular country and is at the same time registered by its tax authorities. Please note that a person can have a residence permit in a certain country without being its tax resident.
A resident visa in the UAE gives its holder a number of advantages over a short-term tourist or guest visa. Firstly, a foreign resident visa provides your right to the long-term residence, which means that there will be no obstacles in entering a country and residing here over the year. Moreover, it will enable you to enjoy the tax advantages of the UAE, as well as freely study or work on the territory of the United Arab Emirates. That is, a resident visa (in contrast to a short-term visa) guarantees you a certain legal status. Secondly, this type of visa gives you the option to become the tax resident of the country.
How to obtain the status of a tax resident in the UAE and other countries of the world?
International law allows you to receive a foreign tax resident of several countries at once. Please note that you can be a tax resident of a country without having a residence permit in it. As a rule, a person is a tax resident of the country of his/her birth, that is the country of his/her citizenship. But how to determine the tax residence abroad of a person in case he/she spends most of the time abroad? In this case, the following conditions are applied:
If a person lives on the territory of the country for more than 180 days, he/she can receive the tax residence of this country. This rule is valid in most countries of the world. However, each foreign jurisdiction has its own specifics. For example, the UK assigns the status of a tax resident only to persons who have spent 180 days on the territory of the country, but also visited the territory of the country for the last four years for a period longer than 91 days a year;
The second condition is purchasing of residential property in the country. That is, a person can obtain the status of a tax resident by means of buying or renting a residential property on the territory of the country. What happens if a person has properties in several countries at once? This person is given the residence of the country where his/her personal assets are located and which is the center of his vital interests.
The third condition is the existence of personal assets and vital interests. Business or a family fall under this category. That is, if your family members reside permanently in a certain foreign country, you can get the status of its tax resident. The same is applied to doing business;
The last condition is the citizenship of a particular country. Citizenship is not a guarantee of tax residence, but in some countries of the world (for example, in the USA), a citizen of the country automatically becomes its tax resident.
The most common ways of obtaining foreign tax residence abroad in the case of the UAE is purchasing property or opening a company in the country. The status of a tax resident of the UAE gives you the opportunity to enjoy the tax benefits of the country, namely, the absence of income and corporate taxes.
Examples and ways of defining tax residence.
- Residence in the UAE, but not a tax residence. For example, you have a resident visa, but the time spent in the UAE is less than 183 days a year. Or the 183-day rule is fulfilled, but the center of vital interests is in another country. In this case, you are a tax resident of the UAE from the point of view of the UAE, but you can also be recognized as a tax resident in the country where you spend a considerable amount of time or where the center of your vital interests is located.
- A tax resident of the UAE, but may also be recognized as a tax resident in the country of origin. If you stay in the UAE for more than 183 days, you can also be recognized as a tax resident of foreign country – if you rent or purchase property there and/or spend a certain amount of time in this country, or your center of vital interests is outside of the UAE. These regulations differ depending on each particular foreign country.
- A non-resident of the country of origin, but paying taxes. The example of this case applies to the citizens of the USA, regardless of where they live, they pay taxes to the US authorities. Or another example – taxation in the place of profit generation – example - receiving income from the rent of a property in Austria or Spain. In this case, the rental income tax is levied in Austria or Spain respectively, regardless of the fact which country you are a tax resident of.
- Tax resident of the UAE. As it has already been discussed in the previous examples, you are a resident of the country from the perspective of the UAE if you have a resident visa and you come to the country at least every 180 days. However, the regulations of foreign countries may impose certain requirements that must be met in order to be recognized by these countries as a resident of the UAE. These requirements can include restrictions on the number of days that you can spend by you in such foreign country, the purchase of real estate, vital interests, and so forth. After checking all the necessary requirements of your country and meeting them, while being a resident of the UAE, you can be considered the full tax resident of the UAE.
Obtaining tax residence abroad as such and on the example of the UAE
As it’s been already mentioned above, there are two most common ways to obtain the status of a tax resident in the UAE – by registering a company or by means of buying a residential property. Registering a company in the UAE is a simple and straightforward procedure, especially if you seek support from one of the business consulting companies. The second way to acquire the status of a tax resident is to purchase residential property for at least 1 million dirhams. Choosing how to obtain the status of a tax resident depends on each particular case.
Main characteristics of the UAE and advantages of obtaining the status of a tax resident abroad
- It is quick – the whole process takes only 2-3 months from the moment of the beginning of the registration procedure until you obtain the residence permit.
- It is relatively inexpensive – compared to other foreign countries, the costs of obtaining a residence permit in the UAE are more than affordable.
- Full exemption from taxes for residents of the country – when you are the tax resident of the UAE, there are no taxes on personal income for individuals living in the country.
What has to be taken into account
What should be taken into account when planning your tax residence abroad? The laws of the country where you obtained a residence permit and residence + the laws of the country you left. When you receive foreign residence, as well as the status of a tax resident of a country, it is very important to take into account the legislative requirements and the peculiarities of the country where you have lived/resided before the change of the residence. Things are more or less clear concerning a resident visa, but there are many important aspects that you need to know concerning tax residence.
Regarding the change of tax residence, it is important for you to know not only how to get the status of a tax resident abroad, but also how to stop being one in the country of your current residence.
Tax residence abroad is a complex issue and it is not possible to provide complete information on all particulars and details of various foreign jurisdictions in one review. In each case, it is extremely important to understand the regulations of another country. For this reason, this review is focused on the most basic data and aspects that are important to know, as well as on how to obtain the status of a resident abroad on the example of the UAE.