Dubai: A UK tax law due to come into force in 2012 will provide welcome clarification to British expatriates in the UAE about their tax status back home, lawyers say.
Until recently, British expatriates working abroad suffered from a lack of clarity on whether they would be classed as UK tax residents or not.
Under the proposed tax residence law, an individual will not be subject to UK tax if he leaves the UK to carry out full-time work abroad and is in the UK for less than 90 days and spends no more than 20 days working in the UK.
The new statutory definition of residence is set to be implemented from April 6, 2012.
"An employee's tax residence is fundamental to his overall tax exposure and therefore it is critical for employers and UK domiciled employees to understand how the rules work, as getting it wrong could prove costly," said Alan Wood, Dubai-based partner at international law firm Pinsent Masons.
"The changes provide a welcome clarification [and to some extent, relaxation] of the current regime, but there remain a number of anomalies and traps for the unwary," he said.
According to Wood, the UK law until now has been unclear and subjective, making it difficult for employers to understand the tax position of their mobile employees.
"Although the details seem to be similar to those that I was aware of, the biggest issue related to this area has been the ambiguity. If this new law brings about more clarity, then I would welcome it," said James Hawksworth, associate director at Capital MSL.
Subjective rules
The new law also includes a mixture of subjective rules. In cases where the 20 day limit is exceeded, the government has listed a number of "connection factors" — which include family, accommodation, presence in the UK during the previous tax year, total time in the UK compared to other countries and work done in the UK. The longer an individual spends in the UK, the fewer number of factors are needed to be resident.
While the new law is a welcome improvement, Hawksworth said the possibility of introducing an expatriate tax would have a reverse effect.
"There is also the ongoing threat of the government introducing expat tax. Looking at the big picture, while introducing an expat tax may boost the government coffers, it would not address the core issue which is British talent leaving the UK as a result of better opportunities elsewhere in the world. To address this, more needs to be done in terms of education and supporting innovation and entrepreneurship," said Hawksworth.
