Understanding DTAA Between India and UAE

What is DTAA Between India and UAE?

India UAE DTAA 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.

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What is the Importance of DTAA Between India and UAE for Both Countries?

The main purpose of entering into an India UAE DTAA 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.

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What are the Taxes Covered Under DTAA?

Personal income tax does not exist in Dubai, while other emirates in the UAE have enacted tax decrees that include revenue taxes. Also, corporations are required to pay corporate tax. The Double Taxation Avoidance Agreement (DTAA) treaty ensures that corporations do not have to pay income tax, wealth tax, and surtax twice, particularly if they are already taxed in India. 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:

• Corporation tax
• Income Tax
• Wealth Tax

In India:

• Wealth tax, also called Indian Tax
• Surtax
• Income tax, including any surcharge

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What are the DTAA Rates Between India and UAE?

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

TDS is also levied on the interest income @12.5% in the UAE.

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Capital Gains Taxation Under DTAA Between India and UAE

Article 13 of India UAE DTAA focuses on the tax policy related to capital gains. Here are some rules regarding the taxation of capital gains -

• A resident of one Contracting State may be taxed in another Contracting State when they gain income from selling immovable property located in that other state.
• If the gains come from selling shares in a company with primarily immovable property in a contracting State, the taxation occurs in that same State.
• When a taxpayer profits from selling shares in a corporation based in a Contracting State, the taxation happens in that particular state.
• However, if taxpayers receive gains from selling any other type of property not covered above, they will only be taxable in the contracting state where they reside.

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Limiting Factors in the India-UAE DTAA

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.

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How does DTAA Between India and UAE Eliminate Double Taxation?

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 -

• An Indian resident who has capital or earns income as per the convention may have to pay taxes in the UAE. However, they can get a deduction of the amount of income tax paid in the UAE, but the deduction can't be more than what they would owe in India before the deduction.
• Similarly, if a UAE resident has to pay taxes in India under the agreement, they can get a credit for the income tax paid in India from their UAE tax obligation.

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.

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