What is a Tax Residency Certificate (TRC)?
A Tax Residency Certificate (TRC) is issued by the UAE Federal Tax Authority (FTA). It proves a person or company’s tax residence status in the UAE.
The TRC states that the holder is considered a tax resident of the UAE as per the country’s tax laws. It specifies the time period for which they have tax resident status.
Since the UAE introduced a corporate tax in 2023, more businesses want a valid TRC. They want to know how the new tax system affects them.
This guide will explain all about TRCs in simple terms. It will cover their purpose, the application process, and their importance under the UAE’s changing tax regime.
Why Do You Need a TRC?
A TRC serves several key purposes for businesses and individuals:
Claim Tax Treaty Benefits
The UAE has over 80 tax treaties with other nations to avoid double taxation. A TRC proves tax residence to avail benefits under these like reduced withholding tax rates on cross-border payments.
Determine Tax Residency Status
It acts as proof of being a tax resident of the UAE according to domestic tax laws. This status decides which countries can tax your global income.
Avail Lower Tax Rates
Most treaties apply lower rates on dividends, interest payments etc to UAE tax residents vs non-residents with just a TRC.
Satisfy Operational Requirements
Some companies need a TRC for a corporate bank account, approvals etc from regulators as tax residency proof.
How to Obtain a TRC?
Applying for a TRC involves basic eligibility checks and documentation:
Eligibility Criteria
- The company must be established and have physical operations managed from the UAE for over 183 days in a tax year.
Documents Required
- Valid trade license, ownership records, names and details of directors on the company’s board.
- Declaration of being a tax resident as stated in the relevant tax treaty.
Application Process
- Submit application online or via a licensed tax advisor along with required papers.
- Expect 2-4 weeks for processing depending on application volumes.
- TRC is then issued with 1 year validity and needs annual renewal.
Following this step-by-step process helps ensure you comply with all rules to secure a valid TRC.
Link Between TRC and Lower Withholding Tax
A TRC allows reduced withholding tax rates on cross-border payments like:
Dividend Income
Standard domestic 10% rate falls to 5-10% for UAE tax residents under most treaties.
Interest Payments
Rates of 5-15% get cut to nil in many cases for interest received by UAE firms.
Example
AED 1 million dividends from a UAE parent to its UK subsidiary sees rates fall from 10% to 5% with a UAE TRC, saving AED 50,000 in taxes held back.
So in summary, a TRC fulfills the proof of residency clause to lower applicable withholding tax deductions.
Conclusion
As the UAE expands its global tax treaty network, a Tax Residency Certificate’s significance rises for businesses and individuals. A valid TRC determines tax obligations and impacts treaty benefits usage in the changing regulations.
Compliance experts now provide vital assistance through full-service TRC solutions. From application review and submission to ongoing renewals with authority liaison, requirements are seamlessly addressed.
With corporate taxes beginning, a priority is obtaining and maintaining a TRC, especially for cross-border traders. It establishes the groundwork for leveraging incentives and optimizing taxation in this evolving regulatory environment. In short, a TRC proves critical under new UAE tax rules.
FAQs
Anyone deriving income from self-employment or a business mainly managed in the UAE for over 183 days requires one.
In the normal course, a TRC is issued within 2-4 weeks if all relevant papers are submitted accurately.
The existing TRC must be surrendered and a fresh certificate obtained from the new country of residence.