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Understanding the nuances of residency and tax regulations in the UAE can be complex, particularly for holders of freelance licenses like those issued by Dubai Internet City (DIC) under TECOM (AXS). Here, we will address some common questions regarding residency requirements, tax residency status, and tax implications for those on a freelance visa, along with relevant laws and sources.

1. UAE Residency Rule: 6-Month Absence

Question: Is the 6-month absence rule independent of visa type and organization sponsoring the visa? Will my visa be cancelled if I spend less than 6 months in the UAE per year? How long do I need to stay in the UAE to reset the 6-month period? Can it be just a quick visit?

Answer: According to UAE Federal Law No. 6 of 1973 on Entry and Residence of Foreigners, a residence visa holder must not be absent from the UAE for more than six consecutive months. This rule is applicable to all types of residence visas, regardless of the sponsoring organization. If a resident stays outside the UAE for more than six consecutive months, their visa may be subject to cancellation.

To reset the 6-month absence period, a visa holder needs to re-enter the UAE. While the law does not specify a minimum duration for the stay, it is generally understood that a brief visit, even for a day, can reset the 6-month period. However, it is advisable to stay for a few days to avoid any complications or scrutiny from immigration authorities.

Source: UAE Federal Law No. 6 of 1973

2. Tax Residency Rule: 3-Month Minimum Stay

Question: How does the new rule about tax residency, which requires a minimum stay of 3 months per year, affect my legal residency?

Answer: The UAE Cabinet Decision No. 85 of 2022 on the Determination of Tax Residency states that individuals must stay in the country for at least 90 days within a calendar year to qualify for tax residency. This requirement is designed to determine the individual's tax status and is separate from the immigration rules concerning residence visas.

Tax Residency vs. Legal Residency:

• Tax Residency: Requires a minimum stay of 90 days per year to be considered a tax resident. This status is primarily for tax purposes and allows individuals to obtain a tax residency certificate.
• Legal Residency: Requires that you do not stay outside the UAE for more than six consecutive months to keep your residence visa valid.

Source: UAE Cabinet Decision No. 85 of 2022

3. Tax Implications of Being a UAE Tax Resident

Question: What are the tax implications of being a UAE tax resident? What taxes do you have to pay?

Answer: The UAE is known for its favorable tax environment, especially for individuals and businesses. Here are the key points regarding the tax implications for UAE tax residents:

1. Personal Income Tax:
   • Zero Personal Income Tax: The UAE does not levy personal income tax on earnings. This means that individuals working in the UAE, including those on freelance visas, do not pay tax on their income earned in the UAE.
2. Corporate Tax:
   • Corporate Tax: As of June 1, 2023, the UAE introduced a federal corporate tax on business profits. The standard rate is 9% for taxable income exceeding AED 375,000. However, many free zones, such as Dubai Internet City, offer tax incentives and exemptions, so it is crucial to understand the specific tax obligations based on your business setup and location.
3. Value Added Tax (VAT):
   • VAT: The UAE imposes a Value Added Tax (VAT) at a rate of 5% on most goods and services. Businesses with taxable supplies and imports exceeding AED 375,000 per year must register for VAT and comply with reporting and payment obligations.
4. Excise Tax:
   • Excise Tax: The UAE also levies excise tax on specific goods deemed harmful to human health or the environment, such as tobacco products, energy drinks, and carbonated beverages.
5. Social Security Contributions:
   • Expatriates: Expatriates are not required to make social security contributions in the UAE.
   • UAE Nationals: UAE nationals are required to contribute to the General Pension and Social Security Authority (GPSSA).
6. Customs Duties:
   • Customs Duties: The UAE imposes customs duties on goods imported into the country, typically at a standard rate of 5%. Certain goods may be exempt or subject to different rates. You can check the specific customs duties applicable on the UAE Federal Customs Authority website.
7. Other Taxes and Fees:
   • While there are no direct income taxes, individuals and businesses may be subject to various fees, such as licensing fees, service fees, and municipality fees, depending on their activities and location.

Source: Federal Tax Authority and UAE Ministry of Finance

Practical Implications

Scenario: If you stay in the UAE for 3-4 months per year, you can meet the criteria for tax residency and obtain a tax residency certificate. However, to maintain your legal residency (i.e., to prevent your visa from being cancelled), you must ensure that you do not stay outside the UAE for more than six consecutive months.

Example: You could split your time in such a way that you spend three months in the UAE, travel abroad for a few months, return to the UAE before the six-month mark, stay for a few days, and then leave again. This way, you maintain both your legal and tax residency statuses.

Summary

To summarize, while the UAE requires a minimum stay of 90 days per year for tax residency purposes, your legal residency is dependent on not being absent from the country for more than six consecutive months. A brief visit to the UAE, even for a day, can reset the 6-month period. However, it is advisable to stay for a few days to ensure compliance with immigration authorities. By carefully planning your stay and travel, you can maintain both your tax residency status and your legal residency in the UAE.

For personalized advice and assistance with understanding these rules, feel free to contact our legal consultants. Our team is well-versed in UAE immigration and tax laws and can provide tailored guidance based on your specific circumstances.

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