Double Tax Avoidance Agreement (DTAA) Between India and UAE

The Double Tax Avoidance Agreement (DTAA) between India and the UAE ensures that persons who are resident of India, the UAE, or both are saved from being taxed twice. Under this agreement, taxes paid in one country can be claimed as a credit in another country, ensuring that tax is effectively paid in only one country. DTAA allows various types of tax relief and deductions and covers incomes like salaries, interest, dividends, royalties, etc. The dividends and royalties for technical fees are charged at a reduced tax rate of 10% and interest at a tax rate of 5% The Indian Government has arranged an agreement with almost 100 countries worldwide to establish a fair and stable taxation system for all.

With cross-border investments and employment becoming more common, understanding the tax implications under DTAA is crucial for residents of both India and the UAE. This article will discuss the effectiveness of the DTAA between the UAE and India and the taxes that apply under this agreement.

DTAA Between India and UAE

• UAE and India signed the tax treaty which came into force on 22nd September 1993 to save double taxation by two countries on the same income. Personal income tax does not exist in Dubai, while other emirates in the UAE have passed tax decrees that include revenue taxes.
• Furthermore, corporations need to pay corporate tax. The DTAA treaty prevents corporations from paying income tax, wealth tax, and surtax twice, especially if they are already taxed in India.
• Residents with a permanent establishment in either India or the UAE are given the same tax treatment in India.
• Both States need to notify one another of any significant changes to their tax systems as per the India UAE DTAA.
• This agreement promotes fair taxation for all parties concerned and encourages investment and commerce between the two countries.
• As a result, businesses and individuals can undertake operations in both nations without fear of being subjected to double taxes.

Significance of DTAA for India and UAE

The major purposes of the DTAA between the two nations are to support developmental objectives and prevent double taxes. From the UAE's point of view, the protection of investment from different non-commercial risks such as expropriation, freezing, nationalisation and sequestration is derived from this agreement. Moreover, the UAE also aims to achieve prompt and fair compensation for investors in cases of expropriation of their investment in relation to the public interest without any discrimination. 

From India’s point of view, the DTAA with UAE has helped improve the scope of foreign investment and boost economic progress. UAE is one of India's most important commercial partners, and the DTAA has made it easier for UAE enterprises to invest in India. It has resulted in increased investment, technology transfer, and job creation in India.

Taxes Covered Under DTAA

Article 2 of the DTAA between India and UAE covers the section on taxes. They are as follows:

• All taxes imposed on total income, total capital, or elements of income or capital, including taxes on gains from the alienation of movable or immovable property, shall be considered income and capital taxes.
• The following tax rates are applicable to the two nations under the DTAA convention.
  • In case of United Arab Emirates (UAE) also called “U.A.E. tax”:
    • Corporation tax
    • Income tax
    • Wealth tax
  • In India: 
    • Wealth tax
    • Surtax
    • Income tax that includes any surcharge thereon
•  The agreement is applicable to identical taxes on capital or income that is imposed at the State or Federal level by either the place of tax or the Contracting State.

India UAE DTAA Tax Rates

The tax rates applicable as per India UAE DTAA on different incomes are as follows.

Apart from this, TDS is levied on the interest income at a rate of 12.5% in the UAE.

Taxation on Capital Gains Under DTAA

Article 13 of DTAA talks about taxation policy related to capital gains. Some rules that are followed in this case are:

• A resident of a Contracting State deriving gains from alienating immovable property and is situated in another Contracting State may get taxed in the other state.
• Gains derived from the alienation of shares of capital stock in a firm whose property comprises primarily immovable property located in a Contracting State may get taxed in the same State.
• Gains from the sale of shares of a corporation based in a Contracting State may get taxed in that state. 
• A taxpayer receiving gains from the alienation of any other property other than those above will be taxable only in the Contracting State of the alienator’s residence.

Taxation on Income from Immovable property

DTAA between India and UAE for income by way of letting out of an immovable property shall be taxed in the country where such property is located.

Elimination of Double Taxation

Article 25 of the India UAE DTAA addresses the measures for eliminating double taxes on foreign income. Some provisions are:

• Any Indian resident who owns capital or derives income according to the provisions of the convention may need to pay taxes in the UAE. Here, India will allow a tax deduction equal to the capital tax or income tax paid in UAE.
• Deductions will not exceed a part of capital or income tax as computed before the provision of deduction to the taxpayer.
• Where a UAE resident needs to pay taxes in India under the agreement, the UAE shall offer a deduction on that person's tax on an amount equivalent to the income tax paid in India. The deduction allowed by the UAE is not more than the UAE taxes on the same part of the income.

Final Word

India-UAE DTAA is a crucial agreement helping both countries develop trade relationships and achieve economic growth. With more than 20 billion dollars in comprehensive economic trade and commerce, both countries have been able to promote mutual improvement in their economies. 

Overall, claiming tax exemptions under the DTAA can help you save taxes for a fiscal year. If you have any income from the UAE or vice versa, it is recommended that you fill up the appropriate categories during ITR filing to save money while paying taxes.

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