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India-United Arab Emirates Double Taxation Avoidance Agreement (DTAA)

The Double Taxation Avoidance Agreement (DTAA) between the Republic of India and the United Arab Emirates (UAE) was signed by India in June 2017 and by the UAE on June 27, 2018. The agreement was ratified in accordance with the Organisation for Economic Co-operation and Development (OECD) on June 25, 2019. The primary aim of this DTAA is to address the issue of possible double taxation for taxpayers who are residents in one country but have a source of income in another.

Applicability of the DTAA

The DTAA covers various types of income in both countries, including:

In UAE:

  • Income tax
  • Corporation tax
  • Wealth tax

In India:

  • Income tax, including any surcharge thereon
  • Surtax
  • Wealth tax

Key Highlights

  1. Taxation of Immovable Property: Income from immovable property may be taxed in India where the property is situated.
  2. Permanent Establishment (PE): The concept of permanent establishment includes places of management, branches, offices, factories, workshops, warehouses, mines, oil or gas wells, or building sites or construction where such activities continue for more than 9 months.
  3. Taxation of Enterprise Profits: Profits of a UAE-based enterprise are taxable only in the UAE unless the enterprise carries on business in India.
  4. Deductions: Deductions of expenses, including executive and general administrative expenses, are provided.
  5. Taxation of Shipping Profits: Profits derived from the operation of ships in international traffic shall be taxable in the state in which the company is situated.
  6. Taxation of Employment Income: Remuneration derived by a resident of the UAE in respect of employment exercised in India shall be taxable only in the UAE.
  7. Directors’ Fees: Directors’ fees and similar payments derived by a UAE resident as a member of the board of an India-based company shall be taxable in India.
  8. Withholding Tax Rates:
    • Interest: 5% if the loan is granted by a bank or similar financial institute, and 12.5% in all other cases.
    • Dividend: 10%
    • Royalty: 10%

Inference and Benefits

The DTAA prevents income tax, wealth tax, and corporate tax from being imposed twice on enterprises that have already been taxed in either of the contracting states. It provides certainty regarding tax residency for UAE residents and has facilitated increased inbound investments in India from the UAE. In the era of global cross-border transactions, the impact of taxation is a crucial consideration for trade and investment decisions. The DTAA aims to provide clarity and prevent double taxation, thereby promoting economic cooperation between India and the UAE.

To know more about DTAA relations between India and UAE, please download our Guide.

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