Temporary return risks UAE

Donatello Pirlo TEP and Guido Ravaglia TEP highlight the tax and residence consequences advisors should consider when clients temporarily relocate from the UAE to the UK, and the practical steps that can help manage them.

What is the issue?
Temporary relocation from the UAE to the UK can trigger UK residence and affect connected companies or family structures.

What does it mean for me?
Clients should be advised not to assume that UAE residence continues automatically or that the UK’s exceptional-circumstances rules will protect short-term UK stays.

What can I take away?
Day counts, UK ties, work activity, Foreign, Commonwealth & Development Office advice, corporate decision-making and mitigation options should be considered.
Recent geopolitical uncertainty in the Middle East has highlighted a practical point that is often overlooked or underestimated.
What happens when UAE residents relocate, even temporarily, to the UK or to another country with which they retain personal, family or economic connections?
A temporary move can have tax consequences, particularly where individuals assume that their UAE residence will continue automatically or that a short stay in the UK will not be relevant because it was
not intended to be permanent.

Taxpayers may believe that they remain UAE resident because the move abroad was temporary, but may later find that they have not met the relevant UAE presence conditions.

UAE residence
The UAE tax residence system is based on several alternative objective criteria. An individual may be treated as UAE tax resident if:

• they are physically present in the UAE for at least 183 days in a relevant consecutive 12-month period;
• they are present in the UAE for at least 90 days in such a period, provided that they are a UAE or Gulf Cooperation Council national or they hold a valid UAE residence permit, and either have a permanent place of residence in the UAE or carry on employment or business there; or
• their usual or primary place of residence and centre of financial and personal interests are in the UAE.
  
  However, UAE rules do not contain a mechanism that allows residence to be preserved because the individual was outside the UAE for reasons beyond their control. ‘Exceptional circumstances’ under the UAE framework operates in the opposite way: days spent involuntarily in the UAE may be excluded from the day count, but days spent outside the UAE are generally not allowed to be treated as UAE days for tax purposes.
  This can create a practical problem.
  Taxpayers may believe that they remain UAE resident because the move abroad was temporary, but may later find that they have not met the relevant UAE presence conditions.
  This issue may only become clear when a tax residence certificate is required or another tax authority asks for evidence of UAE residence.
  
  Advisors should ensure that clients can demonstrate, on the facts, that they were prevented from leaving the UK and that they left as soon as reasonably possible once the relevant circumstances permitted.
  
  Exceptional circumstances
  The UK recognises exceptional circumstances, but this is not a general exemption for difficult or concerning international events.
  The rule is narrow, subject to a maximum of 60 days and broadly requires circumstances beyond the individual's control that prevent them from leaving the UK.
  The Foreign, Commonwealth & Development Office (FCDO) travel advice is relevant to this analysis, particularly where it advises against all travel to a particular country or region. At the time of writing, the FCDO continues to highlight regional tensions affecting the UAE and the wider Middle East,
  including the risk of further escalation, flight cancellations, airspace closures and travel disruption.
  Such advice may be relevant evidence in considering exceptional circumstances but is not the same as advice against all travel, nor does it automatically mean that UK days will be disregarded for SRT purposes.
  Advisors should ensure that clients can demonstrate, on the facts, that they were prevented from leaving the UK and that they left as soon as reasonably possible once the relevant circumstances permitted.
  This is consistent with the approach adopted by HMRC in other crisis situations.
  The exceptional circumstances rule is more likely to apply where events outside the individual’s control prevent them from leaving the UK, rather than where the individual returns to the UK as a matter of personal caution.
  
  Consequences of a temporary return
  The potential tax consequences of becoming UK resident following a temporary return can be significant.
  A UK resident is generally within the scope of UK tax on worldwide income and gains, subject to detailed rules and any applicable reliefs.
  For internationally mobile individuals, the issue is often not just future taxation but also whether actions taken during a period of non-residence may be brought back into the UK tax net upon their return to the UK.
  One example is the UK's temporary non-residence rules.
  A former UK resident who realises capital gains or receives certain types of income (e.g., dividends from close companies) during a period of non-residence may find that those amounts are taxed in the UK if the period of non-residence is too short and the relevant conditions are met.
  This can be particularly relevant for entrepreneurs and investors who dispose of assets while living in the UAE but later spend time back in the UK.
  Split-year treatment may also be relevant, but it should not be assumed. The SRT contains specific cases in which a tax year may be divided into a UK part and an overseas part.
  Whether this mitigates UK taxation will depend on the facts, the timing of the move and the specific circumstances.
  It is therefore something to be considered, not a default answer.
  
  The practical lesson is that emergency relocation can still have tax-residence consequences.
  
  Companies and family offices
  The issue may also extend beyond the individual.
  If a UAE resident temporarily manages companies, family offices or other holding structures from the UK, questions may arise as to where key decisions are actually being made.
  The applicable rules will depend on the legal form of the relevant structure.
  For companies, the UK’s central management and control test is important: a company may be treated as UK tax resident if its business is managed and controlled from the UK, even if it is incorporated elsewhere.
  This does not mean that every temporary stay in the UK will cause a company to become UK tax resident or create an immediate tax charge.
  However, where important board or shareholder decisions are made from the UK, contracts are negotiated or approved from the UK or the individual effectively directs the affairs of the entity while in the UK, advisors should review the position.
  Similarly, UK anti-avoidance regimes may also attribute income or gains of non-UK structures to UK resident individuals.
  These may include the ‘transfer of assets abroad’ rules in relation to offshore income and the rules attributing gains of certain non-UK close companies to UK-resident participators.
  These rules are complex and fact-specific, but the key point is that once the individual becomes UK resident, structures that were previously outside the immediate scope of UK tax may need to be reviewed.

Managing risk in practice
A common mistake is to assume that extraordinary events, such as an armed conflict or regional crisis, automatically suspend normal tax rules.
In reality, exceptional-circumstances provisions are narrow and operate differently in the UAE and the UK.
The practical lesson is that emergency relocation can still have tax-residence consequences.
Leaving the UAE, even for understandable reasons, may bring an individual within another jurisdiction’s residence rules.
Advisors should monitor day counts in real time, review UK ties before travel decisions are made, carefully record and, where appropriate, limit work undertaken while the client is physically present in the UK, since UK workdays can affect residence under the SRT, and ensure that the reasons for relocation are properly documented.
In some cases, the appropriate answer may be to return to the UAE as soon as conditions permit or consider spending time in an alternative jurisdiction, taking into account the potential tax residence, immigration and other legal consequences in that jurisdiction, rather than returning automatically to
the UK.
Where UK residence cannot be avoided, the focus should be on mitigation, including treaty analysis to determine whether applicable double taxation treaties may offer protection, split-year treatment and a review of any disposals, distributions or corporate decisions made during the relevant period.
The key for advisors is to identify the risk early, before a temporary relocation creates an unintended residence position.

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