What do double taxation agreements mean for UAE residents and companies?
What Is Double Taxation?
Double taxation refers to the act of imposing taxes twice on the same source of income, asset or financial transaction.
It arises in international business when tax is levied on the same income in two different countries. This can occur when tax is imposed on a corporation in the country that an income is earned and then again when the income is repatriated in the business’ home country.
The term is also applicable to income tax incurred at both a business level and individual level.
Businesses are considered separate legal entities from their shareholders, therefore corporations are taxed on their annual profits, but shareholders can also be taxed on those same profits when received as dividends applied to their earnings.
Double taxation is generally seen as something that negatively affects international trade and the effective exchange of goods, services and capital.
To address this issue, double taxation treaties are established around the world between countries to act as agreements which guard against the possibility of double taxation and provide transparency for cross-border trade and investment. This ultimately improves the flow of business between two member countries.
This article provides information on the tax agreements that are currently in place in the UAE and the implications for both businesses and residents based in the UAE.
Double taxation in the UAE
At present, the UAE has 90 double taxation agreements in force and 33 pending and is committed to expanding further and signing agreements with additional countries.
This makes it one of the largest tax treaty networks in the world and is an incredibly high number for a country that, with only a few exceptions, enforces no income or corporation tax.
Forming part of such a large international network is very beneficial for the UAE. It encourages the exchange of goods and services between member countries, it promotes the country’s goal of income diversification, and it allows any issues relating to tax evasion to be resolved swiftly and effectively.
Benefits to UAE based companies and residents
For UAE companies and residents. Not only do these agreements ensure businesses and individuals are only taxed once, they also provide clarity on the correct taxation of different types of income such as pensions, property and dividends.
For companies based in the UAE, these agreements can give some relief from foreign taxation and various tax compliance obligations in other countries.
On occasion, the agreements may also result in exemptions and lower withholding tax rates on dividends, interest and royalties. Additionally, if a UAE company has international shareholders, “it is not subject to the tax of the jurisdiction of the shareholders”.
For individuals, depending on the agreements in place, their UAE income may be exempt from income tax in their home country. “For example, between Austria and the UAE, there is a provision that any UAE income is not liable for income tax in Austria.
How do I obtain a UAE Tax Residency Certificate?
In order to benefit from the double taxation avoidance agreements that the UAE has in place, companies or individuals must be in possession of a Tax Domicile Certificate (TDC), also known as a Tax Residency Certificate (TRC).
A Tax Residency Certificate is a document issued by the UAE Ministry of Finance (MoF) to a company operating in the country to establish tax residency and allow it to benefit from the double taxation avoidance agreements.
The Tax Residency Certificate is open to any company operating on the mainland or in a Freezone that has been active in the country for at least a year. Offshore companies are ineligible from this and must receive a tax exemption certificate instead of the Tax Residency Certificate.
As well as business entities, the Tax Residency Certificate is also available to individuals who have resided in the UAE for at least 180 days and who wish to establish tax residency in the country. This is particularly beneficial for individuals whose native countries do not have a double taxation agreement with the UAE. The individuals must have a valid UAE resident visa for more than 180 days to apply.
The requirements to obtain a Tax Residency Certificate are distinct for an individual compared to a corporate entity.
The detailed requirements and steps on to how to obtain a UAE Tax Residency Certificate are contained in our detailed article on the subject – please click the link below to view this information: www.propartnergroup.com/blog/2021/04/how-to-obtain-tax-residency-certificate-in-uae/
How can PRO Partner Group help?
PRO Partner Group (PPG) has direct access to government departments and ministries and can advise you on the implications of double taxation for your company and employees. We can also help you through the process of applying for a tax domicile certificate, which will enable you to establish tax residency in the UAE and benefit from its double taxation avoidance agreements.
If you need assistance with any issues pertaining to double taxation as an individual or a company in the UAE, or for any other related company setup, restructuring, local partner or PRO support matter in Abu Dhabi, Dubai, the wider UAE, Oman or Qatar, then please do get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at email@example.com or complete the contact form below and we will be delighted to assist you.