UAE - UK expats face new residency test in spring

13 December 2012

Proposed residency tests will have taxing implications in the UAE

Dubai: To better clarify which UK expatriates are obliged to pay taxes on income earned and remitted from abroad, an official “statutory residence test (SRT)” is expected to be introduced in the UK next spring, confirm officials with HM Treasury.

The new residency test will gauge residency status and taxes payable annually based upon the number of days a person spends in the UK as well as a variety of connections the person enjoys with the UK such as “family, accommodation and economic interests.”

New legislative provisions are being designed to end years of patchwork court rulings and vague rules governing legal definitions of residency, the government says, and will affect some of the estimated 100,000 British expats living in the UAE.

Lord James Sassoon, Commercial Secretary to The Treasury -- the UK’s Finance Ministry – confirmed with Gulf News that efforts since 2011 to draft new legislation defining residency are in full swing and are expected to culminate in the April 6, 2013 UK Finance Bill when the new residency test is scheduled to be rolled out publicly.

Sassoon made the comments on a visit to the UAE in recent days to shore up commercial and investment ties between the UK and Dubai and Abu Dhabi.

“What we have done, we need to distinguish expats on one hand here from non-doms in the UK. What we have sought to do is to change the tax but in a way that I believe is now second under this government. Features of it do include a new residency definition because the previous residency definition was one that was difficult,” Sassoon said.

“So we’re moving to a new definition of residency but that is intended to be actually one that reflects the concerns we have had particularly with business people from this region who have important investments in the UK and for whom the 90-day rule and the way it has come to be interpreted plainly conflicts with their desire and need to be at board meetings with their UK companies. What we’re doing is mainly reflecting on concerns about that and putting a proper rule in place,” he said.

Sassoon said ironing out a new definition, especially for expatriates, has been “quite complicated” as the government has reached out in consultations to gather comments from the public before implementing permanent new laws and regulations.

Gulf News asked HM Treasury officials for details regarding the new definition of residency and was told that the primary reason behind the push for a new definition is that “the UK does not have a full statutory definition of tax residence. There is some limited legislation but the definition largely rests on legal cases decided in the courts over a long period of time. The result is that the rules are vague, complicated and perceived to be subjective.”

A spokesperson with the Treasury told Gulf News that the “government is reviewing the responses to inform development of policy details in advance of Finance Bill 2013. The Government recognises that it is important for individuals to have certainty about their tax status. The current rules do not do this for some. The SRT has been designed to be transparent, objective and simple to use. The SRT will leave the residence status of the vast majority of individuals unchanged, but provide certainty to those with more complex circumstances. It will take into account both the amount of time an individual spends in the UK and the other connections they have with the UK.”

In its original June 2011 announcement to reform residency status, HM treasury said in a press release that the package of reforms include “increasing the existing 30,000 pound annual charge to 50,000 pound annual charge who claim the remittance basis in a tax year and who have been UK resident in 12 or more of the 14 years prior to the year of claim.”

The Treasury said that it needs to “distinguish between permanent residents and those from abroad who have less connection with the jurisdiction. The UK does this using the well-established concept of domicile and recognizes the limited nature of non-domiciles links to the UK by having a dedicated set of tax rules for them.”

Those tax rules would include under reforms that “residents who are resident but not domiciled in the UK are: liable to UK tax on all their income and capital gains which arise in the UK but only liable to UK tax on non-UK (“overseas”) income and capital gains if they are remitted to the UK,” the Treasury stated.

Source: Gulf News

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