How Tax Residency Certificate from the UAE can benefit you

December 29, 2022Dated:  | |

Tax Residency Certificate can be obtained by both Individuals and Companies registered in the UAE (Except Offshore companies and foreign company’s branches in the UAE)

Individuals, who are tax residents in the UAE, will be taxed only in the UAE for the income generated from the country. The resident’s global income also may be taxed in the country except the income generated through the source principle or Permanent Establishment in foreign countries.

UAE has signed the Double Taxation Avoidance Agreement (DTAA) with around 140 counties. Companies and Individuals who are tax residents in the UAE can avail of the benefit tax treaties signed by UAE.

Most countries are having tax deductions at source, otherwise called withholding tax, for certain payments. If UAE has signed the tax treaty with those countries, a reduced or exempted withholding tax rate will be applicable on those payments.

Example: – Kingdom of Saudi Arabia and UAE signed the tax treaty on 23rd May 2018 and the highlights are as listed below:-

Type of Payment from KSA to other countriesWithholding Tax rates applicable for the payments from KSAWithholding Tax Rates applicable as per the DTAA signed between KSA and UAE
Dividend5%5%
Interest5%0%
Royalty15%10%
Management fee20%0%
Fees for technical services5%/15%*0%

*15% is applicable if the fee for technical services is transferred from KSA to a related party.

It is really important to understand the clauses mentioned in the tax treaty before making any judgment on double taxation. For instance, if the KSA Company is transferring dividends to a UAE company, even if the UAE Company submits the Tax Residency Certificate 5% Withholding Tax will be applicable on the payment. Same time, if KSA Company is transferring Management or technical fee to UAE Company, the Withholding Tax Rate will reduce from 20% to 0%

We, Flying Colour, assist our clients to obtain Tax Residency in the UAE for both natural persons and juridical persons, who are eligible for the same.

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