How to Apply for Tax Residency Certificate (TRC) of the United Arab Emirates (UAE)

Overview Tax Residency Certificate (TRC)

A tax residency certificate (TRC) is a document that confirms an individual's or a company's residency status for tax purposes. The certificate is issued by the tax authorities of the country where the taxpayer is considered a tax resident, based on the local tax laws and regulations.

The purpose of a TRC is to avoid double taxation on income earned in a foreign country. Double taxation occurs when two or more countries levy taxes on the same income. To prevent this, many countries have entered into Double Taxation Avoidance Agreements (DTAAs) with each other. These agreements typically provide for reduced withholding tax rates or NIL withholding on certain types of income, such as dividends, interest, royalties or business income.

To take advantage of these reduced tax rates, taxpayers must provide proof of their residency status in the form of a tax residency certificate. The certificate is usually valid for one fiscal year.

To obtain a tax residency certificate, the taxpayer needs to provide evidence of their residency status, such as proof of their address, employment, and income sources. The application process and requirements may vary depending on the country's tax laws and regulations.

Regulations for TRC in UAE

In UAE, the TRC is categorised in two broad catagoreis viz: (1) Natural persons & (2) Legal persons

Eligibility Criteria Natural Persons

The applicant must have been a resident of the UAE for at least 180 days. Also an annual lease agreement officially documented by the competent authorities, such as EJARI in Dubai, municipalities in other Emirates and free zone authorities must be attached to the application.

Eligibility Criteria Legal / Judicial Persons

In order to be eligible to apply for a TRC, the legal person must have been established for a period of at least one year. Financial accounts must be audited or prepared by an accredited audit firm and attached with other required documents to the application. The report must be certified and stamped by the audit firm. The audited financial report to be attached to the application must cover the year for which the certificate is requested. If the certificate is requested for the present year, the audit report must be covering the past year.

(Note: Offshore companies are not allowed to apply for the service because they are not listed in the Double Taxation Avoidance agreements.)

However, the Cabinet Decision which is effective from 1 Mar 2023 provides that a juridical person shall be considered a Tax Resident in the State in either of the following cases:

1. It was incorporated, formed or recognised in accordance with the legislation in force in the State, and that does not include the branch that is registered by a foreign juridical person in the State.

2. It is considered a Tax Resident in accordance with the Tax Law in force in the State.

TRC v/s Citizenship

It's important to note that tax residency is not the same as citizenship. A person may be a citizen of one country but a tax resident of another. Factors that determine tax residency status vary by country but generally include the number of days spent in the country, the person's permanent home, and the location of their economic interests.

Overall, a tax residency certificate is a useful tool for avoiding double taxation and accessing tax benefits under DTAAs. It's important for taxpayers to understand the local tax laws and regulations and maintain proper documentation to obtain and keep their tax residency certificate.

Benefits of Having TRC

TRC is now a days part of legal framework of many contries. In India, section 90(4) of the Income tax Act, 1961 mandatorily requires TRC for availing the benefits of the Double Tax Avoidance Agreements (DTAAs). Such benefits are: