Tax Residency Certificate in the UAE: Are You Missing Out?
UAE Tax Residency Certificate
In this article, we explore why a Tax Residency Certificate (TRC) is critical for individuals and businesses in the UAE. What are the eligibility criteria, the application process, costs, and benefits?
By the end, you’ll know whether obtaining a TRC is the right move for you or your company.
UAE Tax Benefits and Compliance
The UAE’s tax-friendly system attracts individuals and businesses worldwide, offering significant financial and operational advantages. However, navigating tax obligations in a globalized economy can be complex. Whether you are an individual earning abroad or a company with international operations, a Tax Residency Certificate (TRC) might be essential for unlocking tax benefits and ensuring compliance.
What is a Tax Residency Certificate?
A Tax Residency Certificate (TRC) is issued by the UAE’s Federal Tax Authority (FTA) to confirm the tax residency status of an individual or a company.
This certificate is instrumental in claiming benefits under the UAE’s extensive network of Double Taxation Avoidance Agreements (DTAA) with over 140 countries.
Who is Eligible for a Tax Residency Certificate (TRC)?
A. UAE Companies
To be eligible for a TRC, companies in the UAE must fulfill the following requirements:
| Requirement | Details |
|---|---|
| Valid Trade License | The company must have an active and valid trade license issued by the relevant UAE authority. |
| Physical Presence | Demonstrate a physical presence, such as an office or operational facility, within the UAE. |
| Bank Account Statements | Submit UAE bank statements covering the last 6 months. |
| Audited Financial Statements or Reports | Provide proof of income or financial activity, such as audited accounts or management reports. |
| Minimum Establishment Period | The company should have been operational for at least 1 year in the UAE. |
This applies to all company types, including UAE Free Zone Companies, Onshore Companies, and Foundations or Special Purpose Vehicles (SPVs).
B. Individuals
To qualify for a Tax Residency Certificate (TRC), individuals must meet the following criteria:
| Requirement | Details |
|---|---|
| Residency Requirement | Must have lived in the UAE for at least 183 days in the last year. |
| Valid UAE Residence Visa | Hold a valid residency visa issued by UAE immigration authorities. |
| Emirates ID | A valid Emirates ID card to prove residency in the UAE. |
| Proof of Accommodation | A tenancy contract, title deed, or other documents verifying residence in the UAE. |
| Bank Account Statements | Provide UAE bank statements covering the last 6 months. |
| Income Proof | For employed individuals: salary certificate. For self-employed: valid trade license. |
Why Do You Need a Tax Residency Certificate (TRC)?
A Tax Residency Certificate (TRC) is essential for:
- Avoiding Double Taxation: Individuals and businesses can prevent being taxed on the same income in two jurisdictions.
- Claiming Tax Benefits: Gain access to tax exemptions or reduced tax rates in foreign countries with DTAAs.
- Establishing Economic Substance: Demonstrate tax residency to meet international standards.
- Enhancing Credibility: For companies, a Tax Residency Certificate (TRC) showcases compliance when engaging in global business.
Timelines: 12-18 business days on average from the date of application submission if all the required documents are complete and satisfactory.
Additional time for hard copy: 7-10 extra business days after payment for a printed certificate.
Case Studies:
How a Tax Residency Certificate Can Benefit You?
Company Example 1: Owned by Individuals
A UAE-based trading company owned by individuals exports products to Germany. Without a Tax Residency Certificate (TRC), the company’s income from Germany is subject to a 15% withholding tax. By obtaining a Tax Residency Certificate (TRC), the company qualifies for reduced withholding tax rates under the UAE-Germany DTAA, lowering the tax to 5%, which translates to significant cost savings and higher profitability.
Company Example 2: Owned by a Subsidiary
A UAE-based subsidiary of a multinational corporation provides IT services to clients in France. Without a Tax Residency Certificate (TRC), the income earned is subject to a 10% withholding tax in France. With a Tax Residency Certificate (TRC), the subsidiary can access benefits under the UAE-France DTAA, reducing the withholding tax rate to 0%, and ensuring all profits remain within the group.
Company Example 3: Branch of a Foreign Entity
A UAE branch of a US-based manufacturing company earns royalty income from operations in India. Without a Tax Residency Certificate (TRC), the income is subject to a 20% withholding tax in India. By securing a Tax Residency Certificate (TRC), the branch can claim a reduced tax rate of 10% under the UAE-India DTAA, significantly improving the branch’s operational efficiency.
Individual Example:
A Dubai resident working as a freelance consultant provides services to a client in India. Without a Tax Residency Certificate (TRC), the client withholds 10% of the payment as tax in India. With a Tax Residency Certificate (TRC), the consultant can claim tax exemption under the UAE-India DTAA, ensuring full receipt of income.
Countries Benefiting from a Tax Residency Certificate (TRC)
The UAE has signed Double Taxation Avoidance Agreements (DTAAs) with over 140 countries. Below are some examples of countries where individuals and companies can benefit:
| Country | Applicable to Companies | Applicable to Individuals |
|---|---|---|
| India | Yes | Yes |
| Germany | Yes | Yes |
| United Kingdom | Yes | Yes |
| France | Yes | Yes |
| South Africa | Yes | Yes |
| Canada | Yes | Yes |
| Japan | Yes | Yes |
| Australia | Yes | Yes |
Note: This is not an exhaustive list. Individuals or companies from countries not mentioned above can still apply for a Tax Residency Certificate (TRC), provided a DTAA exists between the UAE and their respective countries. To confirm your eligibility, it’s recommended to review the full list of countries with which the UAE has DTAAs or consult with tax professionals.
Benefits of a Tax Residency Certificate (TRC)
For Companies:
- International Tax Relief: Claim reduced withholding tax rates or exemptions in foreign jurisdictions.
- Enhanced Business Credibility: Showcase tax compliance to partners and investors.
- Support for Global Expansion: Facilitate smoother operations in international markets.
For Individuals:
- Tax Savings: Avoid double taxation on income earned abroad.
- Compliance with Foreign Tax Authorities: Ensure compliance with global tax laws.
- Ease of Cross-Border Transactions: Simplify financial dealings in countries with DTAAs.
When Should You Apply for a Tax Residency Certificate (TRC)?
An individual or company should consider applying for a Tax Residency Certificate (TRC) if:
- The income is sourced from foreign countries with which the UAE has a DTAA.
- They wish to avoid double taxation on their income.
- Need to prove tax residency to foreign tax authorities or business partners.
Conclusion
Obtaining a Tax Residency Certificate in the UAE is a crucial step for both individuals and businesses looking to maximize their tax benefits and ensure compliance with global tax laws.
While the process is relatively simple, it requires careful preparation of documents and adherence to FTA guidelines.
At EZONE, we specialize in guiding our clients through the TRC application process, ensuring a seamless experience.
Ready to Get Started?
Contact EZONE (the top business setup company in Dubai) today to ensure the accuracy of your TRC application and unlock the full potential of the UAE’s tax advantages.
You can reach out to our team for more information and assistance!
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