BackChanging your tax residence can be a strategic decision to optimize your taxes, but it is not free of formal obligations and fiscal consequences that you should take into account. Dubai, due to its favorable tax regime and quality of life, has become a very attractive destination for entrepreneurs, investors, and international professionals. However, this process requires proper tax planning.
Below, we outline, with a practical approach, the most relevant aspects to consider if you decide to change your tax residence to Dubai.
Formal obligations when changing your tax residence
1. Proving tax residence in Dubai
To be considered a tax resident in Dubai, you will need:
o A residence visa (through work, investment, or freelance).
o A tax residence certificate issued by Emirati authorities.
o Proof of physical presence in the United Arab Emirates for at least 183 days in a consecutive 12-month period.
2. Notifying the change in your country of origin
In Spain, you must:
o Notify the change of tax address (Form 030).
o It is advisable to close significant fiscal ties with Spain, such as properties, bank accounts, or even deregistering from the municipal census. This deregistration is automatically processed when you register as a resident at the Spanish Consulate in the United Arab Emirates.
Criteria for determining residence in Spain
The Spanish Tax Administration considers a person a tax resident in Spain if at least one of the following criteria is met:
• Habitual residence: A person is considered a tax resident in Spain if they stay in Spanish territory for more than 183 days in a calendar year (from January 1 to December 31). The days do not have to be consecutive, and any part of a day counts as a full day.
• Center of economic interests: A person will be considered a tax resident in Spain if their main economic activity or the source of their income is primarily in Spain.
Additionally, there is a presumption of tax residence in the following case:
• Presumption of tax residence in Spain due to family ties: If your legally separated spouse and/or children under 18 reside in Spain, the Spanish Tax Administration will consider you a tax resident. As this is a presumption, it can be rebutted with evidence proving you are not a tax resident in Spain. Therefore, it is crucial to prove tax residence in Dubai.
Tax implications of the change
1. Exiting the tax system of the country of origin
In countries like Spain, if you move your tax residence to Dubai, the Tax Agency could apply the “Exit Tax.”
This “Exit Tax” applies to Personal Income Tax (IRPF) taxpayers who change their tax residence to another country, having been subject to this tax for at least ten of the fifteen tax periods preceding the last tax period in which they were taxpayers under this tax. For those under the “Beckham Law”, the years under the cited Special Regime do not count.
The “Exit Tax” applies exclusively to financial investments (shares and interests in any entity). It does not apply to other investments or “Unit Linked” life insurance policies.
If the “Exit Tax” applies, the taxpayer must pay taxes on the “latent” capital gains generated from owning shares or interests, even if these gains have not materialized because the shares or interests have not been transferred. To tax this “latent” capital gain, the following conditions must also be met:
o The market value of all shares or interests exceeds €4,000,000.
o If the above condition is not met, but on the accrual date of the last tax period in which they were subject to IRPF, their stake in the entity exceeds 25%, and the market value of the shares or interests exceeds €1,000,000.
Tax Regime in Spain
o Non-Resident Income Tax (IRNR): As a non-tax resident in Spain, for income obtained in Spanish territory and attributed income for real estate at your disposal in Spain, you will be taxed under the Non-Resident Income Tax. For those who are not residents of the European Union (as is the case), the tax rate is a fixed 24%, and expense deductions are not allowed, requiring taxes to be paid on the gross income amount.
2. Tax regime in Dubai
o No personal income tax: Dubai does not apply personal income tax (IRPF) to individuals.
o Corporate taxes: As of 2023, there is a 9% tax on company profits exceeding 375,000 AED (approximately €100,000).
o VAT: There is a 5% VAT, but it does not apply to all activities.
3. Risk of dual tax residence
If you do not properly sever your economic and personal ties with your country of origin, you may be considered a tax resident in both countries.
Conclusion: planning is key
Changing your tax residence to Dubai can offer significant advantages, but doing so without proper planning can expose you to tax penalties or issues with the Spanish Tax Administration. Before making any decisions, consult with a specialized tax advisor to ensure the process is successful and secure.
B Law & Tax International Tax & Legal Advisors.
“At B LAW&TAX we are specialists in international tax advice for both companies and individuals. If you would like further information, we will be pleased to assist you at 917817194 or info@blaw.es”
