Key Benefits of Double Taxation Avoidance Agreements in the UAE
Are you looking to start your business or invest in the UAE as a foreigner? In that case, you must understand the double tax treaties in the UAE with the help of a Business tax consultancy, like Flyingcolour Tax Consultants.
Double taxation occurs when the two countries tax the income at a corporate and personal level. You might be surprised that the UAE has signed double tax treaties or DTAA to prevent you from double taxation.
We are sure that you know everything about the DTAA in the UAE after reading this blog; it can prevent you from being double taxed. Here, we will discuss everything about the DTAA. In addition, we will highlight the benefits of DTAA in this country.
Double Taxation - Overview
Are you still confused about the double taxation? No worry! Let us make you understand the exact meaning of double taxation in detail.
Double Taxation occurs mainly in two ways. First, payment can be taxed at the corporate and personal level. For example, when you pay the dividends to its shareholders, the earnings that give the cash for these dividends have already been taxed at the corporate level. However, the shareholders who receive these dividends also incur income tax liabilities in many countries, leading to double taxation.
Second, double taxation can happen when two countries tax the same income. This case is the most common issue for double taxation if you’re an international business owner, where your business can be taxed in the nation where it's earned and then taxed again when repatriated to your home country. When two countries impose similar taxes on the same taxpayer like you on the same tax base, it can negatively affect the exchange of products, capital, technology transfer, and trade across borders. Today, we will focus on this scenario.
Suppose you operate a public or private organization, investment firm, air transport-based company, or other companies in the United Arab Emirates (UAE). In that case, you can enjoy the benefits of double tax treaties (DTT) effectively. Let us dive into more details about these perks and details of DTAA in the UAE.
Double Taxation Agreement in UAE
To promote global strategic partnership and improve the competitiveness of the UAE, over the years the ministry of this country has launched the Double Taxation Agreement (DTA) and Bilateral Investment Treaties (BITs) network wherein the UAE included 193 DTAs and BITs.
Whether through indirect or direct taxes, the United Arab Emirates (UAE) introduced this policy to remove or lower taxes on the profits earned by its residents and international businesses, like yours. Moreover, the country seeks to protect all your investment types and safeguard you against non-business-related risks, ensuring that your profit may be easily transferred with freely convertible currency.
The Purpose of the DTAA or avoidance of Double Tax Agreement
The UAE has introduced the DTAA or Double Tax Agreement for the following purposes:
- The UAE helps you to remove problems relating to investment flows and cross-border trade.
- It promotes the development goals of the UAE and diversifies national income sources.
- Whether direct or indirect, it offers complete protection to you from double taxation and avoids obstructing the free flow of trade and investment plus promoting development goals. Additionally, it diversifies national income sources and boosts the investment inflow size.
- This agreement eliminates double taxation, additional taxation, indirect taxes, and fiscal evasion.
- It takes into consideration the taxation issue and the capital modification in the economy and financial sector. It also aims to introduce new financial tools and the transfer pricing mechanism.
- It also encourages the exchange of goods, services, and capital movement.
Benefits of Double Tax Treaties (DTT) in the UAE
You can enjoy countless benefits with the DTT in the United Arab Emirates (UAE). The Double Taxation Treaties or DTT has made the lives of several people more satisfactory in the UAE. The following is the list of top benefits you can enjoy with DTT:
1. Avoidance of Double Taxation
Due to the Double Tax Treaties (DTTs) in the UAE, you can avoid paying taxes twice on the same income. This is advantageous for UAE citizens or residents who are earning income in another nation that has the DTT with the UAE. The DTT allows for the use of tax credits, which means taxes paid in one nation can be offset against taxes owned in another country. In addition, it holds enormous relevance for multinational businesses operating in the UAE, especially in free zones.
2. Tax exemption
Dubai Tax Treaties (DTTs) can provide you with specific tax benefits. For example, specific DTTs can decrease tax rates for particular payment types or completely exempt specific types of income from taxation. This may encompass income from activities, like real estate, personal service, shipping, and air transportation of products. These exemptions depend on the provision outlined in each DTT.
3. Lower withholding tax
DTTs have also helped people, like you, to lower withholding taxes. This tax is a tax deducted at source on income, like interests, dividends, and royalties. DTTs often stipulate decreased withholding tax rates compared to standard rates under domestic law.
This helps you save significant tax. Here, you should remember one thing: the specific withholding tax rates and income type you apply can differ from treaty to treaty. However, you should review the relevant DTT or seek Engaging Corporate Tax Consultants in the UAE to understand the potential tax implications.
List of countries with DTTs in the UAE
You might be surprised to know that the UAE has signed DTTs with several countries. Let us take a look at the top countries with DTTs in this country:
- India
- UK
- Turkey
- Brazil
- Singapore
- Saudia Arabia
What are the steps to claim tax relief under DTTs in the UAE?
The steps you need to follow to claim tax relief are mentioned below:
- Initially, you must determine your residency status per the rule in the respective DTT.
- Next, you should apply for a Tax Residency Certificate from the relevant tax authority.
- Lastly, you should submit the required documents, like a Tax Residency Certificate under DTTs.
How can Flyingcolour Tax Consultant help you?
Double Tax Treaties (DTT) or DTAA is a tool that can help you prevent double taxation in the UAE. Flyingcolour Tax Consultants can help you to claim tax relief in this country. Furthermore, our experts can guide you at each step of claiming your tax relief. Moreover, we will help you clear any confusion about the DTT.
To learn more about Double Taxation Avoidance Agreements signed by UAE and Benefits of DTAA, 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.