Relocating from Canada to UAE : how to stop being a tax resident in Canada after moving to the UAE, steps to take, formalities to fulfill, complete guide

Relocating to the United Arab Emirates (UAE) offers significant tax advantages, including zero personal income tax. However, if you’re a Canadian moving to the UAE, you must take specific steps to cease being a tax resident in Canada. Failure to do so can result in ongoing tax obligations in Canada. Here’s a comprehensive guide on how to effectively terminate your Canadian tax residency.

1. Key considerations when ceasing tax residency in Canada

• Understand local Canadian tax residency rules : Canada determines tax residency based on significant ties, secondary ties, and intent. Significant ties include having a home, spouse, or dependents in Canada. Secondary ties encompass factors such as Canadian bank accounts, driver’s licenses, and memberships. This criteria is also usually used in the double tax treaty concluded between UAE and Canada. As per article 4 of the double tax treaty UAE – Canada, a tax resident of UAE is an individual that has a substantial presence, permanent home or habitual abode in the United Arab Emirates and that individual’s personal and economic relations are closer to the United Arab Emirates than to any other State.
• Establish a permanent home in the UAE : The UAE’s tax-free environment can only benefit you if you establish a permanent residence there. Rent or purchase property in the UAE and ensure that this residence becomes your primary home.
• Sever ties with Canada : To stop being a tax resident, you need to sever significant and secondary ties with Canada. Actions to take include:
  • Selling or renting out your Canadian home.
  • Relocating your spouse and dependents to the UAE.
  • Closing Canadian bank accounts and credit cards.
  • Surrendering your Canadian driver’s license.
  • Cancelling or transferring memberships in Canadian organizations.
• File form NR73 (determination of residency status) : Submit Form NR73 to the Canada Revenue Agency (CRA) to request a determination of your residency status. While not mandatory, this step provides clarity on your tax obligations.
• Pay the departure tax : Upon leaving Canada and severing tax residency, you may be subject to a “departure tax.” This tax is a deemed disposition of certain assets, such as investments, at fair market value. Ensure you report this in your final Canadian tax return.
• Inform the CRA : Notify the CRA of your departure date and update your address to the UAE. Indicate your non-residency status in your final tax return to avoid future tax assessments.
• Avoid maintaining canadian residential ties : After relocating to the UAE, avoid actions that could re-establish ties with Canada, such as frequent visits or retaining a Canadian mailing address. Doing so could risk reactivating your tax residency.

2. The Canada-UAE tax treaty

The tax treaty between Canada and the UAE plays a crucial role in preventing double taxation and clarifying tax obligations for individuals and businesses operating in both countries. Under this treaty, income earned in the UAE is generally exempt from Canadian taxation for non-residents, provided you have effectively terminated your tax residency in Canada. This agreement ensures that you can fully benefit from the UAE’s tax-free environment without being subject to Canadian tax on the same income. Understanding the provisions of this treaty is essential to managing your tax obligations effectively.

3. Is the UAE is a tax haven ? 

The UAE’s favorable tax policies make it an attractive destination for expatriates. With no personal income tax, no capital gains tax, and extensive double taxation treaties, the UAE provides a significant financial advantage. 

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Navigating tax residency rules can be complex. Engage our tax advisors experienced in Canadian and UAE tax laws to ensure compliance and optimize your financial position.