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The existence of the Double Taxation Avoidance Agreement (DTAA) between India and the United Arab Emirates (UAE) plays an important role in their economic relationship. Before the introduction of this DTAA, trade relations between the two nations faced challenges related to double taxation. This agreement, established to prevent double taxation of income and provide clarity on tax regulations, has significantly improved the bilateral business landscape. By eliminating the risk of double taxation, it fosters investment, enhances trade, and benefits taxpayers by offering relief, ultimately bolstering economic cooperation between India and the UAE. In this guide, we shed light on the various provisions of DTAA between India and UAE and the DTAA rates between India and UAE.
DTAA between India and UAE was signed by both countries in 1993 and has been revised multiple times since then. This written agreement aims to eliminate the double taxation on the income earned by entities and individuals in both entities. DTAA is an agreement between two countries that allows investors to claim relief from tax in their home country for the tax paid in the foreign country.
If the residents have a permanent establishment in any of the countries, they are given the same tax treatment in India. As per the DTAA between India and UAE, both countries must notify each other about any significant changes in taxes. In addition to promoting fair taxation, it also encourages commerce and investment between the contracting countries.
The main purpose of entering into a DTAA between India and UAE is to increase cooperation and investment between both countries and prevent double taxation for the citizens of the contracting countries. UAE is an important strategic and economic partner for India. DTAA between India and UAE has made investing in India easier for UAE companies. This agreement has helped in technology transfer, increasing investment, and job creation.
Article 2 of the DTAA between India and UAE covers the following sections on taxes -
All taxes imposed on total capital, total income, and taxes on gains from selling movable and immovable property are considered income and capital tax.
The DTAA between India and UAE covers the following taxes in both countries -
In the case of UAE, it is also called UAE Tax:
In India:
The tax rates applicable as per India UAE DTAA on different incomes are as follows.
| Type of income | Income earned in | Income taxed in | Exception |
|---|---|---|---|
| Interest | Country in which the resident is a recipient | Residence country of the recipient |
Interest is taxed in the State of origin and should not exceed the following:
|
| Dividends | Country in which the resident is a recipient | Residence country of the recipient | Dividends are taxed at a maximum of 10% in the country where the firm paying dividends is based. |
| Royalties | Country in which the resident is a recipient | Residence country of the recipient | Taxed at a maximum of 10% of the gross royalty amount in the contracting state in which they occur. |
TDS is also levied on the interest income @12.5% in the UAE.
Article 13 of DTAA between India and UAE focuses on the tax policy related to capital gains. Here are some rules regarding the taxation of capital gains -
The India-UAE Double Taxation Avoidance Agreement (DTAA) has played a crucial role in promoting cross-border economic activities. However, challenges and limitations exist, particularly in the interpretation and implementation of the agreement. Differences in interpretation can lead to disputes and inconsistencies in applying the provisions.
Addressing the potential for tax evasion and abuse is a significant concern. To mitigate this, the agreement includes robust provisions for the exchange of information and anti-abuse measures, ensuring the integrity of the tax system.
Dispute resolution mechanisms are vital but may encounter challenges in practice due to differences in legal systems, administrative processes, or interpretations of the agreement. Despite these challenges, the India-UAE DTAA serves as an essential framework for regulating tax matters between the two countries.
Article 25 of the DTAA between India and UAE provides for the measures that can help eliminate double taxation on the same income for citizens of both countries -
The Double Taxation Avoidance Agreement (DTAA) between India and the UAE, established in 1993, has played a pivotal role in eliminating double taxation and promoting economic cooperation. This agreement covers various taxes, including income, wealth, and capital gains, providing clarity and relief for taxpayers in both nations. It has facilitated investment, technology transfer, and job creation, strengthening their strategic and economic partnership. The DTAA's provisions ensure fairness and reciprocity, benefiting businesses and individuals and reflecting the importance of international tax agreements in the globalized world. However, understanding the complex world of international taxation can be difficult and complex. But don’t worry! Our team of experts at Tax2win’s Tax Advisory Service are qualified chartered accountants who are always here to help you with all your tax-related queries. Get Tax Advice Now!
As per article 15 of the DTAA between India and UAE, unless the person works in the other Contracting State, salaries, wages, and similar earnings of a resident of one Contracting State for their employment are only taxable in that State as long as the other Articles mentioned don't affect this rule
As per the income tax rules of the UAE government, as an NRI, you are not required to pay income tax in UAE. Under the DTAA between India and UAE, you are also exempt from paying income tax in India on your UAE income. However, if you hold any investments in India, then the earnings from such investments are taxable in India.
