Moving a business to the UAE: Why setup, residency and UAE tax residency need to be planned together 

Business owners relocating to the UAE sometimes assume that their tax residence will follow once the UAE company is established and their residence visa is in place. In fact, the timing can be different, particularly during the first year of a move.

This can become important where an existing overseas company remains active, or when the owner needs to establish UAE tax residence in another jurisdiction.

How does the UAE company fit with the existing business?

Many owners relocating an established business to the UAE do not immediately close or transfer their overseas company. It may continue trading while the UAE operation is established. In some cases, there is a good commercial reason for both companies to remain active.

The role of the UAE company needs to be clear when the structure is chosen. Some businesses intend to move most of their activity here over time, while others will continue operating across the UAE and their existing jurisdiction. That affects what the UAE company will be licensed to do and whether a mainland or free zone structure fits the business.

For internationally focused businesses, a free zone may be the natural choice, particularly where the 0% Corporate Tax rate is part of the attraction. Whether the company can benefit from that rate depends on what it will actually do, because the 0% treatment applies to Qualifying Income of a Qualifying Free Zone Person rather than to free zone companies generally.

Residence and UAE tax residency status do not always start together

A UAE residence visa allows an owner to live and work in the country, but its issue date does not automatically become the start date for UAE tax residence.

Under the UAE’s domestic rules, spending at least 183 days in the country during a relevant 12-month period is one route to tax residence. Other routes are available where the relevant conditions are met, so an owner does not necessarily have to wait until day 183.

We often see owners obtain UAE residence while they are still spending considerable time with an overseas business. During the first few months, regular travel can make the tax residence position less immediate than the immigration paperwork might suggest.

Knowing which residence test is likely to apply before the move makes it easier to plan the timing and keep an accurate record of time spent in the UAE.

What happens to the overseas company?

Existing contracts may remain with the overseas company after the owner relocates, or it may continue serving a part of the business that is not being transferred to the UAE. The owner’s move can still change the way that company is managed.

Decisions that were previously taken in its home jurisdiction may gradually start being made from the UAE, without any formal change to the company’s place of incorporation.

Under UAE Corporate Tax rules, a foreign-incorporated company can be treated as a UAE resident person if it is effectively managed and controlled from the UAE. Where its main strategic and commercial decisions are made is relevant to that assessment.

Its home jurisdiction may apply its own corporate residence rules as well. If the overseas company is going to remain active, how it will be managed after the move is therefore part of the relocation planning.

The country being left still counts

Becoming UAE tax resident does not determine when tax residence ends in the country the owner is leaving. This can easily become relevant where the owner continues to have ties there for some time after the move.

Each jurisdiction applies its own residence rules. Where both countries regard an individual as resident, the relevant double taxation agreement may contain rules for determining residence for treaty purposes.

The timing can become particularly important when a significant transaction is planned around the relocation. An owner intending to receive a substantial dividend after moving to the UAE, for example, needs to understand where they will be tax resident when it is paid. The same consideration can arise around the sale of a business.

When tax residence needs to be proved

For many owners, the distinction becomes most obvious when evidence of UAE tax residence is requested. This might happen when dealing with a tax authority in another country or when relying on one of the over 140 UAE double tax agreements.

The UAE Federal Tax Authority can issue a UAE Tax Residency Certificate (TRC) once the applicable requirements have been met. The evidence needed will depend on the basis for residence. Someone relying on physical presence, for example, will need records showing the time spent in the UAE.

Companies can also apply for a Tax Residency Certificate. A newly incorporated UAE company generally needs to have existed for at least 12 months before it can apply, so a business expecting to rely on a UAE double tax agreement should allow for that period.

Owners who travel frequently are well advised to keep accurate records as the move takes place. Reconstructing travel and residence information several months later can be considerably harder.

Planning the move together

A business relocation can quite reasonably happen in stages. An existing company may continue trading while the UAE operation gets underway, and the owner may spend time between jurisdictions during the transition.

The UAE structure should reflect what the business will actually do here, while the timing of the owner’s move needs to take account of the tax residence position they intend to establish. If an overseas company remains active, where it will be managed needs to be considered as part of the same process.

Planning these points together allows the business to move at a commercially sensible pace without leaving the tax position to be worked out afterwards.

For support obtaining UAE – Abu Dhabi or Dubai tax residency certificates, please contact us.