Tax Residence Certificate- Are you compliant with Exempt Licensees requirements under New ESR -UAE
By Alia Noor, FCMA, CIMA, MBA, Oxford fintech programme, GCC VAT Comp Dip,COSO Framework.
Associate Partner Ahmad Alagbari Chartered Accountants, UAE
The UAE does not levy income tax on individuals. However, it levies corporate tax on oil companies and foreign banks. Excise taxis levied on specific goods which are typically harmful to human health or the environment. Value Added Tax (VAT) is levied on a majority of goods and services.
Under new ESR The UAE “Federal Tax Authority” (FTA) has been assigned the role of “National Assessing Authority” which is responsible for assessing and enforcing compliance with the economic substance tests in the UAE along with VAT. “Regulatory Authorities” (RAs),on the other hand, are responsible for collecting and checking the accuracy of notifications and reports submitted by the licensees and assisting the FTA in carrying out its role as National Assessing Authority.
Exchange of Information with Foreign Authorities
The Regulatory Authority will submit to the Competent Authority any information in relation to any of Exempted Licensees. The National Assessing Authority (FTA) and the Regulatory Authorities may coordinate with any ministry or administrative body in the UAE to procure any information within their possession relating to a Licensee or an Exempted Licensee that they may require for the purposes of implementing the ESR Regulations.
The Competent Authority will exchange information with relevant Foreign Competent Authorities in the following circumstances:
- where an entity claims to be tax resident in a jurisdiction outside the UAE; and
- where a branch of a foreign entity claims to be subject to tax in a jurisdiction outside the UAE.
In the UAE , New ESR and New Guidance issued in August, 2020 override the previous ESR .UAE businesses needs to perform an assessment as to whether the current position is still valid taking into account the changes implemented.
(MINISTERIAL DECISION NO. 100 for the year 2020 on the issuance of directives for the implementation of the provisions of the cabinet decision no 57 of 2020 concerning economic substance requirements)
The amended ES Regulations has introduce four categories for exempt Licensees.”Exempt Entities mandatorily have to (i) file a notification and (ii) provide sufficient documentary evidence to substantiate and benefit from their exempt status.”
- Entities that are tax resident outside the UAE
- Investment Funds
- Entities that are wholly owned by UAE residents and that (i) are not part of a multinational group, and (ii) only carry out business activities in the UAE
- UAE branches of a foreign head office / parent whose relevant income is subject to tax in the jurisdiction of the foreign head office / parent
1-Exempt Licensees Requirements under NEW ESR
1-Filling a Notification
Licensees that have already submitted a notification for the financial year ended 31 December 2019 directly to their Relevant authorities are required to re-submit a notification in accordance with the provisions of the new ESR on the MoF’s portal once it is available which is expected to be in Q42020.
2-Provide sufficient documentary evidence to substantiate and benefit from their exempt status.
Under New ESR Exempt licensees ,”Entities that are Tax Resident outside the UAE” and “Branch of a Foreign Entity claims to be subject to tax in a jurisdiction outside the UAE” in both cases , the UAE entity will need to submit a “Tax Residence Certificate” or “other documentation issued by the tax authority in the foreign jurisdiction” in which it claims to be a tax resident, evidencing that it is treated as a locally tax resident entity in that foreign jurisdiction.”
2-What is “Tax Residency Certificate” or “Tax Domicile Certificate” in UAE
“Tax Residency Certificate” or “Tax Domicile Certificate” in the UAE is an official document issued by the government of the resident country to prove that an individual or corporate entity is residing in the country.
CHANGE OF ISSUING AUTHORITY FROM MOF TO FTA
Tax Residency Certificate or Tax Domicile Certificate is issued by the Ministry Of Finance (MoF).
FTA will now issue tax residency, commercial activities certificates for investors in UAE via its e-Services portal instead of MOF Effective from 14th November 2020.
Users are directed to the login page to enter his/her username and password to log in, and upon successfully registering with the services portal, the user will be directed to the list of all requests related to tax certificates assigned to him/her, appearing in the control panel.
The registrant has the opportunity to choose to submit one or several requests, and once selected his/her desired option, all the details of the request will appear and will be provided with the choice to approve, complete, reject or refund any taxes paid outside the UAE which allows for a tax refund.
The registrant may download the attachments to verify the data, complete the process and follow-up the status of their request.
Corporate individuals can apply for Tax Domicile Certificate in UAE to avoid double taxation , If there is an agreement signed by two countries called DTAA (Double Taxation Avoidance Agreement) and It is mandatory to issue the Tax Domicile Certificate to the eligible applicant by the Tax Authority.
“Double Taxation Treaty” is an agreement that is signed between countries to avoid tax during international trade activities. Many countries have entered this agreement to avoid tax for import-export, income tax, Value Added Tax etc.
The Tax Residency Certificate or Tax Domicile Certificate can consider as double tax avoidance agreement. Corporates and individuals can use the certificate for one specific country at a time and they can have multiple certificates as such.
Tax Residency Certificate or Tax Domicile Certificate is the ultimate proof to show you or your establishment that you are the tax resident in the country of residence. Banking authorities, financial institutions and other departments are considering Tax Residency Certificate or Tax Domicile Certificate as the proof of tax residency in the country of residence.
In the UAE mainly there are three types of companies, that are Mainland companies, Free zone companies and Offshore companies
Mainland companies and free zone companies can use the benefits of “Tax Residency Certificate” or “Tax Domicile Certificate”. Offshore companies are not entitled to the tax treaty benefits and cannot receive such certificates.However they can apply for The “Certificate of Tax Exemption” It differs from the certificate of a tax resident – it liberates you from a number of taxes, but does not confirm the tax residence of the company.
“The validity of the Tax Domicile Certificate in UAE is one year from the date of issue.”
3-How to get a Tax Residency Certificate or Tax Domicile Certificate in the UAE
Resident can apply for the “Tax Residency Certificate” or “Tax Domicile Certificate” in UAE if he/she has stayed in the country (UAE) for a minimum period of 180 days.
Time For Application: Once the Tax Residency Certificate or Tax Domicile Certificate in UAE is applied, it will take 3-5 days to get the certificate.
Documents required for Individuals to get a Tax Residency Certificate or Tax Domicile Certificate in UAE
- A copy of Passport and Emirates ID
- Valid residence permit
- A certified copy of the (residential) lease agreement / Tenancy contract
- Bank statement for 6 months
- Salary certificate / Income certificate
- A report from the General Directorate of Residency and Foreigners Affairs mentioning the duration of the person’s stay in UAE (Minimum 180 days)
- Tax forms (if any) from the country where the certificate needs to be submitted
Companies which have registered and operated in the UAE for a minimum one year can apply for a tax residency certificate.
Time For Application: Once the Tax Residency Certificate or Tax Domicile Certificate in UAE is applied, it will take 3-7 days to get the certificate.
Documents required for Companies to get a Tax Residency Certificate or Tax Domicile Certificate in UAE
- A copy of the trade license.
- A copy of MOA (Memorandum Of Association)
- A copy of the company’s owners/partners/directors’ passports, IDs and permits of residence
- Last year audit statement
- Bank stament for 6 months
- A certified copy of the lease agreement
- The organizational structure of the company (if it is not a sole company)
All UAE entities are strongly recommended to assess or reassess whether their activities fall within the scope of the Economic Substance Regulations, and Exempt Licensee should ensure that your UAE entity (company or a branch) is compliant with ruls and has a valid Tax Residency Certificate to submit along with revised notification.
All Notifications and Economic Substance Reports must be submitted electronically on the Ministry of Finance Portal by December 31, 2020. Licensees and/or Exempted Licensees can commence filing on the Ministry of Finance portal once it goes live, which is scheduled for the first week of December, 2020.
Non –Compliance Penalty AED 20,000