As a country which levies very little tax on its companies and residents, the UAE is an attractive business destination to many foreign investors. Aside from a few exceptions, businesses in the UAE do not pay any direct taxes on corporate profits and individuals are not taxed on personal income.
Despite enjoying these tax exemptions, it’s important that foreign residents and company owners are fully aware of the implications of this on tax obligations in their home countries.
Fortunately, the UAE has an extensive network of double taxation treaties with trade partners which helps to ensure that expats pay a fair rate of tax and are not subject to double taxation or an unnecessarily high tax burden.
What is double taxation?
Double taxation is a situation in which two or more jurisdictions impose taxes on the same income, asset or financial transaction. It can also refer to the imposition of tax twice on the same income or activity. This can occur because tax is levied at both a business and individual level and a corporation can be taxed on its annual profits, but shareholders can be taxed on those same profits when received as dividends.
It is generally accepted that double taxation is an issue that hinders the free flow of goods, services and capital across borders and can also negatively affect international relations. For this reason, countries establish double taxation treaties with trade partners to eliminate the risk of double taxation and to establish fair and appropriate taxation rights.
The UAE has one of the largest double taxation treaty networks in the world, a considerable feat for a country which imposes very little tax itself. This network encourages the free flow of trade and business between two member countries and can also provide relief from foreign taxation and other tax compliance obligations in other countries
The UAE’s double taxation network
To date, the UAE has concluded 105 Double Taxation Agreements (DTA’s) with the majority of its trade partners, with another 29 agreements in various stages of negotiation and ratification.
The benefits of being part of a network this large are numerous. It promotes the UAE’s economic diversification goals by encouraging the exchange of goods, services and capital and removing any barriers to cross-border trade and investment. It also helps to eliminate double taxation, indirect taxes and fiscal evasion and ensure fair allocation of taxing rights among its trade partners.
How do UAE based companies and residents benefit from the double taxation network?
First and foremost, these double taxation agreements provide UAE companies and residents with the reassurance that they will only be taxed once on a single source of income. They also help to clarify the taxation rights of various types of income such as pensions property and dividends.
In some instances, these agreements can also provide businesses with relief from tax compliance obligations in other countries such as exemption from or reduced rates of withholding tax on dividends, interest and royalties. A lot will depend on the two member countries involved and the types of agreements they have in place.
If you’re not sure of which exemptions you may be eligible for or in which jurisdictions your tax obligations are applicable, it’s best to seek the help of a qualified tax expert to ensure that you and your business are fully compliant with all tax requirements in the UAE and your home country.
How can Global Link help?
International taxation is a complex field, so it’s important to be fully aware of your tax obligations to remain fully compliant with regulations both in the UAE and your home country and to avoid any unnecessary penalties.
Global Link has over 16 years’ experience working with local and global businesses, providing bespoke consultancy services for company incorporations in Dubai and the wider UAE.
We have close connections with key government departments and ministries and can advise you on any issues surrounding double taxation to you and your business.
If you need advice on the subject of double taxation or for any other company incorporation, visa or PRO service, please get in touch with us on +971 4 553 9901 or email us at [email protected] and we will be happy to assist you.