How UAE Double Taxation Treaties Can Save You Thousands Abroad
In the modern era, where many of the business transactions are cross-border due to global mobility, businesses and individuals often face the risk of being taxed in more than one jurisdiction for the same income generated. Here, the UAE has taken a proactive approach by signing the extensive Double Taxation Agreements, which help to get the tax benefits as well as avoid being taxed in more than one country for the same income.
In this Article, let us explore the UAE's double taxation treaty networks and understand how UAE residents, both companies and individuals, can benefit from them to protect income generated from outside the UAE, enhance profitability, and ensure that tax compliance is taken care of.
What Is a Double Taxation Avoidance Agreement (DTAA)?
A Double Tax Avoidance Agreement (DTAA) is a treaty signed between two countries to eliminate the chances of taxing the same income twice. The main objectives of tax treaties are;
* Avoid the situation where the taxpayer is paying taxes in their home country as well as the country from where the income is generated ( Source country)
The core area of DTAA focuses on a country's taxing rights, such as dividends, interest, royalties, capital gains, and business profits, and on preventing double taxation of the same income in multiple jurisdictions.
UAE's Expansive Treaty Network
UAE has signed more than 135 Double Taxation Treaties (DTAA) with other countries across the globe, including;
- Major economies like India, China, the UK, France, Germany, and Canada
- Emerging markets in Africa, Southeast Asia, and Latin America
- Key trading partners in the GCC and the Middle East
This is one of the main reasons multinational entities and High Net-Worth Individuals (HNWIs) consider the UAE as an attractive jurisdiction to structure their business transactions, secure their assets, etc. The UAE's DTAA network extensively provides many tax benefits to companies and individuals who are resident in the UAE via reduced withholding tax, avoiding double taxation, etc.
Who Can Benefit from the UAE's DTAA?
UAE has made the qualifying criteria to become a tax resident of the UAE, which leads to getting the benefits of the DTAA signed by the UAE. Conditions are different for companies to individuals. This applies to;
Individuals
- Expats who are staying in the UAE for 183 days or more.
- Freelancers and consultants who have foreign-sourced income.
- High Net-Worth Individuals who have investments or generate passive income from other countries.
Companies
- Companies which are more than 1 year old in the country.
- Entities registered in the mainland of the UAE, Free Zone entities, holding companies which manage global subsidiaries etc., can benefit from the DTAA.
Subject to satisfying the conditions, the tax residents can apply for obtaining the Tax Residency Certificate (TRC) through the portal of the Federal Tax Authority (FTA).
Common Types of Income Covered Under DTAAs
1. Dividends: Most of the overseas dividends are taxed at source; the treaties can provide reduced or exempt withholding taxes on the remittance of dividends outside the country.
2. Interest: Reduced tax rates can be benefited from cross-border interest payments through the DTAA.
3. Royalties: The income generated from royalties by the Intellectual Property holders can benefit from the lower tax rates.
4. Capital Gains: Depending on the asset type, it may be exempt from the source country from being taxed.
5. Business Profits: Unless the UAE entity has permanent establishment outside the country, the business profits are taxed only in the UAE.
Real-Life Scenarios Where You Can Benefit
1. Freelancers & Remote Professionals
Think of a situation where you are a UAE-based freelancer with a client base in the UK and India. In the absence of DTAA, the source countries may withhold taxes on the fees charged by you to your clients. Submitting a UAE TRC can help in applying the DTAA provisions:
- You can either claim tax exemption or lower withholding tax rates in the country.
- Your foreign income is fully taxable only in the UAE, where the person's income is taxed at 0%, and the business income of an individual is taxed only if the annual income exceeds 1 million dirhams.
2. Multinational Companies
In the scenario where you own a UAE company with operations in India. Under the UAE-India DTAA you can get:
- Instead of a local withholding tax rate of 20% towards the dividend paid by the Indian Subsidiary to your UAE parent company, DTAA can provide a reduced withholding rate of 10%.
- Income generated from interest, royalties, and fees for technical services may also qualify for a lower withholding tax rate.
3. Investors & Real Estate Owners
If you are a tax resident in the UAE who owns real estate properties in a European country with which the UAE has signed a DTAA:
- You may be able to avoid capital gain taxes while selling the property, or get a credit for taxes paid abroad while reporting the income in the UAE
How to Claim Benefits under a DTAA
Step 1: Obtain a Tax Residency Certificate (TRC)
* Individuals and entities registered in the UAE must apply for a Tax Residency Certificate in the prescribed manner. The Federal Tax Authority (FTA) is the administrative body that issues the TRC after reviewing the application.
* Tax Residency Certificates are country-specific and valid for 1 year.
Step 2: Check the Specific DTAA
* Review the treaty articles for dividends, interest, royalties, and business income. Review the DTAA for the relevant articles where you want to apply the benefits, like business income, property income, royalties, interests, etc.
* Make an understanding of which country has taxing rights on the income and the applicability of reduced taxes.
Step 3: Submit TRC and Treaty Documents to the Foreign Tax Authority
- Some countries are asking specific forms along with the TRC to get the DTAA benefits and make sure that the special forms are attested by the UAE Federal Tax Authority (Example: India - Form 10f, Saudi Arabia Form Q7B)
- In order to avoid automatic withholding, apply before or during the tax year.
Expert Tips to Maximise DTAA Benefits
1. Plan Before Income Is Earned: Before the income is earned from foreign countries or a contract is signed with your overseas customers, make sure that the treaty planning is taken care of and have a clear idea about the impact of withholding tax.
2. Maintain Substance in the UAE: Every company in the UAE must make sure that adequate substances are maintained in the country, such as employees, office, real operations, and financial presence.
3. Keep Clean Documentation: All the documentation required for the tax residency certificate shall be maintained, like audited financials, bank statements, and residency proof.
4. Consult a Tax Agent: It is highly recommended to engage a certificate UAE tax agent to handle your treaty claims and planning.
Future Trends: DTAAs in the Age of Global Transparency
As an initiative between the countries in order to avoid the artificial movement of profit for tax purposes, treaty abuse is under scrutiny. The reporting standards like Common Reporting Standards (CRS), Automatic Information Exchange System (AIES), and Base Erosion and Profit Shifting (BEPS) have become widespread among countries, and it is essential to ensure that:
- The business activity and residency in the UAE are genuine.
- The business has transparency in the ownership (reporting the Ultimate Beneficial Owner of the entity) and income reporting to the authority.
- Before planning the treaty benefits, proper tax advice.
Why Work with Flying Colour Tax Consultant LLC?
At Flying Colour Tax Consultant LLC, we provide:
- TRC application and compliance support
- DTAA interpretation and implementation guidance
- Cross-border tax planning for individuals and corporations
- Holding company and international structuring
- Coordination with legal, banking, and audit partners
With deep experience in UAE tax law and a network of global professionals, we help you make the most of your income-wherever it's earned.
Final Thoughts
UAE has become one of the most tax-efficient jurisdictions with many reasons, like extensive DTAAs, which are still growing as well as zero personal income tax.
Whether you're a business owner, investor, or global professional, leveraging the UAE's DTAA network can significantly reduce your tax burden and increase your net income.
To learn more about UAE Double Taxation Treaties: How to Maximize Benefits for Your Overseas Income, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.