Double Taxation Avoidance Agreement (DTAA) and its Benefits to Expats Residing in UAE
The Double Taxation Avoidance Agreement provides unique advantages to residents of a country who reside and earn income overseas for a designated duration. With over 137 countries worldwide, the UAE has entered into Double Taxation Agreements, promoting international economic collaboration and facilitating equitable tax practices.
Key Highlights of the Double Taxation Avoidance Agreement
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 Agreements allocate taxing rights, ensuring that individuals and businesses are subjected to taxation only once. These agreements also provide relief from foreign taxation and certain foreign tax compliances enforced by other countries. Furthermore, Double Taxation treaties facilitate the exchange of information and foster cooperation between nations to combat tax evasion. They establish a globalized framework for effectively resolving any tax-related issues that may arise, promoting fairness and efficiency in cross-border taxation.
How does the Double Taxation Avoidance Agreement (DTAA) affect UAE expatriates and companies?
The double taxation agreement for expatriates applies when they have a second residence outside of the UAE. Moreover, individuals residing in the UAE for more than 183 days (not necessarily consecutively) are subject to this agreement. Companies with international shareholding enjoy exemption from shareholder jurisdiction taxes.
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.
Key Tax Reforms in the UAE to Keep an Eye On
The UAE has forged a strategic partnership with the OECD as a member of the inclusive framework on ‘Base Erosion and Profit Shifting’ (BEPS). This pertains to the tax avoidance tactics employed by major global corporations, where profits are shifted from jurisdictions with higher tax rates to those with lower tax rates, thereby eroding the tax base of the former. To safeguard tax bases and provide enhanced benefits for UAE residents, the UAE has implemented regulations and treaties in accordance with internationally agreed-upon tax rules.
Multilateral Agreements between the UAE and Other Nations
The UAE has recently undertaken a momentous stride in harmonizing its taxation framework with global standards. Through the signing of a Multilateral Instrument, the country has facilitated the modification of existing treaties to adhere to regulations concerning the avoidance of double taxation and the prevention of Base Profit Erosion and Profit Shifting (BEPS). This development not only ensures compliance but also enhances the country’s alignment with international norms, fostering a more robust and efficient tax system.
Moreover, in an effort to bolster transparency and adhere to global taxation norms, the UAE has implemented Economic Substance regulations. These regulations necessitate that companies operating in designated sectors and conducting business with overseas affiliated entities must undergo an Economic Substance Regulation Test. Furthermore, they are obligated to furnish comprehensive information regarding their business operations in the UAE to the relevant authorities.
The Double Taxation Agreement and the UAE’s Commitment
The primary objective of the Double Taxation Agreement (DTA) is to minimize or eliminate taxes on investments and profits, whether they are direct or indirect in nature. Additionally, it simplifies the process of repatriating profits in various currencies, while ensuring compliance with tax regulations. This agreement plays a crucial role in optimizing financial outcomes and promoting international trade.
The UAE has entered into approximately 137 Double Taxation Agreements (DTAs) with its trading partners. These agreements provide a legal framework for investors conducting business in the UAE to avoid being taxed twice on their earnings. The primary objective of these DTAs is to foster free trade and eliminate the potential for double taxation faced by taxpayers who have business operations in the UAE.
Double Taxation Agreements (DTAs) play a crucial role in facilitating seamless trade flow between economies and across borders. By diversifying income sources and attracting more investment inflows, DTAs contribute significantly to the growth of the UAE’s economy. Furthermore, the exchange of tax information promotes transparency and acts as a safeguard for the national economy.
Complying with the DTA bolsters the UAE’s position as a prominent global financial and trade hub. The UAE actively champions Double Taxation and plays a pivotal role in fostering international cooperation while upholding global regulations.
Regulations on Ultimate Beneficial Ownership in the UAE
The UAE Cabinet has implemented a legislative amendment aimed at bolstering corporate transparency. This novel framework prioritizes the disclosure and registration of beneficial interests, ultimate beneficial owners, and shadow directors. Its objective is to establish a more robust and comprehensive system that fosters openness and accountability within the corporate sector.
All UAE Companies (Onshore and Offshore – excluding those registered in the DIFC or ADGM) must comply with their reporting obligations under the UBO regulations.
To ensure adherence to UBO regulations, it is imperative for companies to collect and furnish the following information in a timely manner.
1. A UBO Register
The term “Ultimate Beneficial Owner” (UBO) pertains to an individual who possesses a minimum of 25% shareholding in a company and exercises ownership, control, or voting rights. In cases where no individual meets this requirement, any person who has control over the company can be designated as the UBO. This designation ensures clarity and transparency regarding the entity’s key decision-makers.
2. Register of Nominee Directors/Managers
Information regarding directors and managers who are carrying out instructions on behalf of a third party.
3. Shareholder/Partner Register
Please ensure that the number of ownership interests held by each partner/shareholder, along with their corresponding voting rights and the date of acquisition, are included. Any changes to this information must be promptly reported to the appropriate authority within 15 days. Maintaining accurate and up-to-date registers is crucial to avoid incurring administrative fines.
MLI Synthesized Text of the India-UAE DTAA
The Multilateral Convention to Implement Tax Treaty Related Measures, also known as the MLI, is a direct outcome of the BEPS action plan developed by the IECD Inclusive framework. This framework offers governments an effective solution to bridge gaps in international tax treaties by establishing beneficial bilateral tax agreements worldwide. By doing so, it promotes fairness and efficiency within the global tax system, curbing the erosion of tax bases and the shifting of profits.
By implementing the Multilateral Instrument (MLI) and embracing the Base Erosion and Profit Shifting (BEPS) action plan, countries can effectively address tax avoidance and foster a fairer and more transparent international tax landscape.
What exactly is Synthesized Text?
The “Synthesized Text” is a comprehensive document that merges the provisions of a Double Taxation Avoidance Agreement (DTAA) and the Multilateral Instrument (MLI). However, it is important to understand that the Synthesized Text does not possess legal authority and should not be relied upon for legal purposes. Instead, it offers procedural amendments to assist residents residing outside their home country in mitigating double taxation.
Improving Writing Quality: Amendments to the India-UAE Double Taxation Avoidance Agreement (DTAA)
The synthesized text for implementing the India-UAE DTAA has been collaboratively edited by both the UAE and India, with the aim of protecting the interests of both parties. The amendments in the synthesized text adhere to the OECD Guidance and DTAA regulations, ensuring alignment with international standards. The revised text encompasses regulations concerning tax-saving strategies and the appropriate methods for mitigating double taxation for foreign investors in their respective home countries.