UAE has signed a Double Taxation Agreement with more than 137 countries around the world.

Double Taxation Avoidance Agreement – Highlights

Being part of the international tax framework and adhering to the OECD (Organisation for Economic Co-operation and Development) regulations, the DTAA treaty provides protection and benefits for companies registered in UAE.

Double Taxation Avoidance Agreement allocates taxing right and ensure individuals and businesses are only taxed once.  The agreements also provide relief from foreign taxation and certain foreign tax compliances of other countries.

The Double Taxation treaties allow for the exchange of information and cooperation between countries to address tax evasion and provide a globalized framework to resolve any tax-related issues between countries.

What impact do UAE expatriates and Company Have from DTAA?

For expatriates’ double taxation agreement come into play when they have a second residence outside of UAE. Also, the individual is living in UAE for more than 183 days (need not be a continuous stay). Companies that consist of international shareholding, it is not subjected to a tax of jurisdiction of the shareholders.

Companies with more than 1 year of establishment in UAE can avail of the benefits of Double Taxation by applying for the Tax Residence Certificate.

Things to Lookout – Tax Reforms in the UAE

UAE has a strategic partnership with the OECD and part of the inclusive framework on ‘Base Erosion and Profit Shifting (BEPS). It refers to strategies used by large global companies as part of tax avoidance strategies.

Companies shift profits from higher-tax jurisdictions to a lower-tax jurisdiction. Thereby, eroding the tax base of higher -tax jurisdiction.

UAE has created regulations and treaties based on the consensus of international tax rules to protect tax bases while offering increased benefits for residents of UAE.

Multilateral Agreements of UAE with Other Nations

UAE has signed a Multilateral Instrument that makes it easier to amend the existing treaties accordingly to comply with the international framework of double taxation avoidance and Base Profit Erosion and Profit Shifting (BEPS) regulations.

To be further transparent and compliant with international taxation standards, UAE introduced the Economic Substance regulations.

Companies in certain relevant sectors residing in UAE and exchanging business transactions with foreign connected entities are subjected to an Economic Substance Regulation Test and filing of sufficient information about the business operations in UAE to the authorities.

Double Taxation Agreement & UAE’s Commitment

Double Taxation Agreement aims to exempt or reduce tax on investment and profits from direct and indirect taxes. Also helps in profit repatriation to other currencies without any tax regulations.

UAE has signed almost 137 DTAs with its trade partners to avoid double taxation for the inevstors who conduct business in UAE legally. DTA is aims at free trade and eliminate the chances of double taxation on the tax payer having company operations in UAE.

DTA supports free flow of trade between economies and cross-borders. It helps UAE to diversify the income source and increase investment inflow. Also, exchaning tax information helps in acheiving transparency and protection of national economy.

By complying to the DTA, the stature of UAE as a global financial and trade hub is strong. Also UAE plays an active role in supporting Double Taxation. It helps in strengthening international cooperation and comply with international regulations.

UAE Ultimate Beneficial Ownership Regulations

A legislative change aimed to improve corporate transparency is issued by the UAE Cabinet. It is a framework for reporting and registering beneficial interests, ultimate beneficial owners, and shadow directors.

All UAE Companies (Onshore and Offshore – excluding those registered in the DIFC or ADGM) must comply with their reporting obligations under the UBO regulations.

Companies must prepare the following details to comply with the UBO regulations.

1. A UBO Register

UBO is a natural person who ultimately owns or controls or has the right to vote with a minimum of 25% shareholding of the company.

In the absence of a natural person satisfying the condition, any natural person who exercises control over the company can be the UBO.

2. Register of Nominee Directors/Managers

Details of directors/managers acting under the instructions of a third party.

3. Shareholder/Partner Register

Include the number of ownership interests held by each partner/shareholder and their voting rights, date of acquisition of interests.

Any change in the information provided must be notified to the relevant authority within 15 days of such change. All registers must always be completed and up to date to avoid administrative fines.

MLI Synthesized Text of the India-UAE DTAA

The Multilateral Convention to Implement Tax Treaty Related Measures to prevent Base Erosion and Profit Shifting (MLI) is an outcome of the BEPS action plan of the IECD Inclusive framework.

BEPS framework offers a solution for governments to plug loopholes in international tax treaties by introducing favorable bilateral tax treaties worldwide.

What is Synthesized Text?

“Synthesized Text” is a document consisting of the consolidated text of the provisions of a Double Taxation Avoidance Agreement (DTAA) and the Multilateral Instrument (MLI).

The Synthesised Text is not a source of law or cannot be used for legal purposes, it is a few procedural amendments to be followed to ensure double taxation is avoided for residents living outside their home country.

Amendments in the Synthesised Text for India -UAE DTAA

The Synthesised text for the application of the India – UAE DTAA is edited on a common agreement by UAE and India to protect the interests of both parties. The amendments in the synthesized text have been developed on the lines of the OECD Guidance and DTAA regulations. 

The amended text will cover the regulations of tax savings strategies and the right way of evading double taxation in the home country by a foreign investor.

To know more about Double Taxation and apply for a Tax Residence Certificate in UAE or How Tax Residency in UAE can help Investors from Europe, connect with our expert team right away!

Contact: Aurion Business Consultants

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The Free zones in UAE offer simplified company formation packages with a wide range of incentives to the investors. The 100% foreign ownership in the 45+ Free Zones are greatly attracting foreign investors to UAE.

What is Attracting Foreign Investment in UAE?

1. Ease of Doing Business

The UAE government’s support to promote business and trade is the most important reason. Obtaining a business license in UAE is seamless and could be as less than 1 hour depending on the license type.

Hence, the UAE offers a quick and reliable company formation ecosystem and platform via the free zones and the Department of Economic Development.

2. Infrastructure and Transport Facility

The Robust business ecosystem and infrastructure in UAE is ideal for successfully starting any business category. There are enormous networking opportunities in the UAE, also the free zones offer various technology infrastructure to support business in the UAE.

3. Banking Support

UAE has some of the world-best international and local banks. They offer a large variety of business bank account and incentives to the investors based on specific requirements. Opening a Corporate bank account in UAE is relatively easier. The Bank supports the business ecosystem in UAE greatly by offering various investment options and benefits for the corporate account holders.

4. Tax Schemes

UAE has a strong network of international tax treaties. The UAE has more than 115 Double Taxation Treaties (DTAs) in place with other countries. It will ensure business and residence are not taxed twice on the exchange of trade or services.

How to Leverage the Low Tax Rates of UAE?

To enjoy the low taxation in the UAE, foreign investors have multiple options for setting up a business in the UAE

• Apply for a residence visa and fly in and out every 6 months
• Conduct generating trading in the local UAE market via a local agent or distributor and expand business in the UAE
• Setup a local LLC Company in the Mainland of Dubai
• Setup a Free zone Company in UAE
• Acquire a sinking company in the UAE and restructure it

The Tax rates in the UAE are very low compared to Europe, the US, and most of the other business hubs of the world. Thus, businesses based in UAE will be enjoying low tax or tax-free status. The only tax for corporates and individuals here is the VAT (5%) on services and goods transacting in the UAE market.

So, company formation is a lucrative investment and a tax saving mechanism for most of the investors from European and other high tax countries.

5. Diversity of Business and Enormous Growth Opportunities

Businesses in the UAE are spread across a wide range of activities. The diversity of business has given rise to emerging opportunities across various industry sectors. To speed up growth in certain specific sectors, the UAE government has introduced many initiatives like long term visas, foreign investments, infrastructure support, etc.

6. Economic Stability

The UAE has a solid economy and the political climate is very sound and stable. UAE is an investment hotbed due to its strategic location, strong financial reserves, healthy international relations, business infrastructure, etc.

7. Variety of Choices for Company Formation

The flexibility to business anywhere in UAE and the enormous choices of free zones, industrial areas, and commercial establishments is making UAE stand out from the world.

8. Availability of Talent and Labour

There is a wide talent pool available in the UAE. The government of UAE has launched a new long term residence visa for a qualified workforce in health, science, technology, etc.

Also, UAE is advancing in terms of the latest technology adoption, sustainable energy, etc. There is a lot of initiative in the line of research, the latest technology, artificial intelligence, smart transportation, etc.

9. Political Stability

UAE has long-term political stability with strong diplomatic policy worldwide. As trade tensions and security issues continue to affect corporate growth elsewhere in the world, the foreign investors are looking at UAE as a prospective place to set up their base.

So, in a nutshell, foreign investors especially from high tax countries such as Germany, Italy, France, UK, etc., find UAE to be a lucrative investment destination to reduce the tax burden.

UAE Freezones – Key Benefits for the Foreign Investors

Foreigners can easily set up business establishments in the Free Zones of UAE. It offers a wide range of investor benefits such as:

• 100% ownership
• 100% profit repatriation,
• Apply for a residence visa,
• Avoid double taxation
• World-class business infrastructure
• Easy business setup
• No personal or corporate tax in the UAE
• No customs duty for imports into Free zones of UAE
• and many more…

To know more about Foreign Investment through Company Formation in the UAE, talk to our Legal and business Experts right away!

Read more about “How Tax Residency in UAE can help Investors from Germany, Italy, the UK, and the Rest of Europe?“

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