In the UAE, the newEconomic Substance Regulations (ESR) and New Guidance issued in August,2020 override the previous ESR.
Under new ESR, the UAE ‘Federal Tax Authority’ 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) have been assigned the responsibility for collecting and checking the reports submitted by the licensees and assisting the Federal Tax Authority (FTA) in carrying out its role as National Assessing Authority.
The National Assessing Authority and the Regulatory Authorities will coordinate with any ministry or administrative body in the UAE to procure any information within their possession relating to a Licensee or Exempted Licensee that may require for the purposes of ESR regulations.
The Competent Authorities will exchange information with relevant Foreign Competent Authorities in the following circumstances:
The amended ESR has introduced the following four categories for exempt Licensees:
Licensees that have already submitted a notification for the FY (financial year) ended 31 Dec, 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.
Under the 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 is treated as a locally tax resident entity in that foreign jurisdiction.
NOTE: [‘Tax Residency Certificate’ or ‘the 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 another country. 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.The validity of the Tax Domicile Certificate in UAE is one year from the date of issue.]
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.
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.
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.
NOTE: [The Tax Residency Certificate or Tax Domicile Certificate can be considered 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.]
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.
NOTE: [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 rules and has a valid Tax Residency Certificate to submit along with revised notifications. All notifications and ESR must be submitted electronically on the Ministry of Finance Portal by 31 Dec, 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 Dec, 2020.]
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