Double Taxation Agreement Between the UK and UAE: Everything You Need to Know
The United Kingdom and the United Arab Emirates signed a double taxation agreement on 12 April 2016. This agreement aims to prevent double taxation and tax evasion on income and gains generated by individuals and businesses in both countries. In this article, we will discuss the key points of the double taxation agreement between the UK and UAE.
What is a Double Taxation Agreement?
A double taxation agreement (DTA) is a bilateral agreement between two countries that aims to prevent double taxation of income and gains generated by individuals and businesses in both countries. The agreement determines which country has the right to tax specific types of income and how much tax should be paid. This agreement is beneficial to individuals and businesses as it ensures that they do not pay tax twice on the same income or gain.
Key Points of the UK and UAE Double Taxation Agreement
1. Residence-Based Taxation
The UK-UAE double taxation agreement is based on residency. This means that individuals and businesses are taxed in the country where they are resident. For example, a UK resident who generates income from the UAE is taxed in the UK, while a UAE resident who generates income from the UK is taxed in the UAE.
2. Types of Income Covered
The agreement covers a wide range of income, including dividends, interest, royalties, pensions, and capital gains. The agreement also covers income from employment, including income from directors and artists.
3. Tax Rates
The agreement determines the maximum tax rates that each country can apply to specific types of income. For example, the maximum withholding tax rate on dividends is 5% in the UAE and 15% in the UK. The maximum tax rate on interest is 10% in the UAE and 0% in the UK.
4. Tax Credits
The agreement allows individuals and businesses to claim a tax credit for foreign tax paid. This means that if a UK resident pays tax on income generated in the UAE, they can claim a credit for the UAE tax paid against their UK tax liability.
5. Permanent Establishment
The agreement defines what constitutes a permanent establishment (PE) in each country. A PE is a fixed place of business through which a business carries out its activities. The definition of a PE is important as it determines whether a business is subject to tax in a country where it does not have a physical presence. The agreement allows for the attribution of profits to a PE.
Conclusion
The UK-UAE double taxation agreement aims to prevent double taxation and tax evasion on income and gains generated by individuals and businesses in both countries. The agreement is beneficial to individuals and businesses as it ensures that they do not pay tax twice on the same income or gain. The agreement covers a wide range of income and determines the maximum tax rates that each country can apply to specific types of income. The agreement also allows for the attribution of profits to a permanent establishment.