When discussing residency abroad, it is important to clearly distinguish between two concepts: citizenship and tax residency. These statuses are not identical and may relate to different states. A person may be a citizen of one country, reside in another on the basis of a residence visa, and at the same time be a tax resident of a third country.
It should also be noted that holding a residence visa or permit in a foreign country does not automatically confer tax resident status in that country. Tax residency is determined by separate criteria established by national tax legislation.
What is tax residency?
The concept of tax residency applies to both individuals and legal entities and determines their tax affiliation with a particular state. From the perspective of tax law, a tax resident is a person who, under the legislation of a specific country, is subject to taxation in that country based on a combination of established criteria.
It is important to understand that a person may hold a residence permit or residence visa in a certain country without being its tax resident, and conversely, may be recognized as a tax resident of a country without holding a residence permit there.
A UAE residence visa provides its holder with several significant advantages compared to short-term tourist or visit visas. It grants the right to long-term residence, unrestricted entry and exit, and the ability to work, study, and conduct business in accordance with applicable legislation. In addition, holding a residence visa is one of the key factors considered when assessing tax residency in the UAE, but it is not the sole or automatic basis for obtaining it.
How to obtain tax resident status in the UAE and other countries?
International practice allows for situations in which the same individual may be recognized as a tax resident of several states. It is also possible to be a tax resident of a country without holding a residence permit there, provided this is permitted by national legislation.
In the classical sense, tax residency is often associated with citizenship or country of birth, but in modern conditions, other criteria play a decisive role. If a person spends a significant amount of time outside their country of citizenship, tax status is determined based on the following factors.
Main criteria for determining tax residency
- Number of days of presence. Many countries apply the physical presence rule – typically 183 days or more within a calendar or tax year. However, this rule is not universal and may be supplemented by other conditions. For example, the United Kingdom applies a complex statutory residence test that takes into account not only the number of days spent in the country, but also ties to the state in previous tax periods.
- Availability of housing or real estate. Ownership or rental of residential property may be considered a factor in recognizing tax residency. If property exists in several countries, the state with which the individual has the strongest connection is taken into account.
- Center of vital interests. The center of vital interests refers to the place where a person’s personal and economic interests are concentrated: family residence, business operations, asset management, and social and professional ties.
- Citizenship. Citizenship alone does not always determine tax residency; however, in certain countries (for example, the United States), citizens are subject to taxation regardless of their place of residence.
Tax residency in the UAE: practical examples
UAE residence visa without tax residency
For example, an individual holds a UAE residence visa but spends a limited amount of time in the country and has their center of vital interests in another jurisdiction. In this case, the individual may not be recognized as a tax resident of the UAE, and tax obligations will be determined by the legislation of another country.
Tax residency in the UAE with simultaneous residency in another country
Even with long-term residence in the UAE, a person may be recognized as a tax resident of another state if their property, family, or main business is located there. Such situations are regulated by national laws and double taxation avoidance agreements.
Absence of tax residency in the country of residence
An example is U.S. citizens, who are required to declare income and pay taxes in the United States regardless of their place of residence. Another example is source-based taxation (for example, rental income from real estate in Europe), which is taxed in the country where the income arises.
Full tax residency in the UAE
An individual may be recognized as a tax resident of the UAE upon meeting a combination of conditions: holding a residence visa, actual presence in the country, absence of stronger tax ties with other jurisdictions, and compliance with the requirements of the country of origin’s legislation.
Obtaining residence and tax residency in the UAE
In practice, the most common ways to establish tax residency in the UAE are:
- company registration and obtaining a residence visa;
- acquisition of residential real estate and obtaining resident status.
It should be noted that property values and visa conditions may change, and the optimal route choice depends on the individual situation, income structure, and country of origin.
UAE specifics and advantages for tax residency
- Speed of processing – obtaining a residence visa through business or investment usually takes several months.
- Relative accessibility – compared to a number of other countries, the cost of obtaining residency in the UAE remains competitive.
- No personal income tax – the UAE does not levy personal income tax on individuals (subject to meeting tax residency conditions). At the same time, since 2023, a corporate tax has been introduced that applies to legal entities and does not directly affect individuals' personal income.
What should be considered when planning tax residency abroad
When changing tax residency, it is necessary to consider both the legislation of the new country of residence and the rules of the country of departure. It is especially important to analyze in advance the conditions for losing tax residency in the country of origin, as in many jurisdictions additional requirements and restrictions apply.
Tax residency is always a complex issue and requires individual analysis. There is no universal solution that works in all situations.
Commentary
This overview outlines the key principles and approaches to determining tax residency, as well as the specifics of obtaining residence and tax status abroad using the UAE as an example. In each case, it is recommended to conduct a detailed analysis that takes into account the legislation of all involved jurisdictions and, where necessary, to seek professional advice.
