Double Taxation Agreement Between UAE & India

Overview

As an Indian, if you’re starting a business in UAE you have to pay taxes on the income you generate or taxes on the capital gains. But paying the taxes in both countries might not sound fair. To avoid such a situation the Income Tax Department of India has signed the Double Taxation Agreement between UAE & India. In this article, we’ve clearly explained the DTA between both countries, what types of taxes are covered in this treaty, and how the tax rates differ on income gained through capital, interests, dividends, royalties, and more.

Double Taxation Agreement – UAE & India – Explained

Article 25 of the India-UAE DTAA explains how to avoid double taxation on income or capital earned in both countries. Here’s a simple breakdown:

For Indian Residents – If an Indian resident earns income or owns capital in the UAE and pays taxes there, India will reduce their Indian tax liability by the amount of tax already paid in the UAE. However, this reduction cannot exceed the amount of Indian tax due on that same income or capital.

For UAE Residents – If a UAE resident earns income in India and pays Indian taxes, the UAE will reduce the person’s UAE tax by the amount of tax paid in India.
This system ensures that taxpayers are not taxed twice on the same income or capital in both countries, making cross-border investments and activities smoother.

Importance of Double Taxation Agreement – UAE & India

The primary objective of the DTAA between the two nations is to support developmental goals and eliminate double taxation. From the UAE’s perspective, the agreement protects against non-commercial risks such as expropriation, freezing of assets, nationalization, and sequestration. It also ensures prompt and equitable compensation for investors in cases of expropriation in the public interest, without discrimination.  

For India, the DTAA with the UAE has significantly enhanced the potential for foreign investment, driving economic growth. As one of India’s key trade partners, the UAE has leveraged the agreement to simplify investment in India. This has led to increased capital inflow, technology transfer, and job creation, further strengthening economic ties between the two countries.

Types of Taxes Covered in DTAs – UAE & India

All taxes imposed on total income, 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. Under ‘Article 2’ the Double Taxation Agreement between UAE & India covers the following taxes:

In the case of UAE – U.A.E Taxes

• Corporate Tax – This type of tax has many synonyms it is also called federal corporate tax or company tax. This is collected from the company’s profit after deducing the expenses.
• Income Tax – Here the tax amount is directly withdrawn from the employee’s salary by the company and paid to the government as personal income tax.
• Wealth Tax – A wealth tax is a tax based on the market value of assets currently owned by a taxpayer, as opposed to taxes on asset sales, income, or real estate.

In the case of India – 

• Wealth tax, also called the “Indian Tax” – The meaning remains the same i.e., the tax charged on the assets the individual holds while the tax rates are high comparitively. 
• Surtax – This is an additional tax on things that are already taxed, especially when individuals earn above a certain amount.

The agreement applies to identical taxes on capital or income that are imposed at the State or Federal level by either the place of tax or the Contracting State.

India & UAE DTA’s – Tax Rates

Key Takeaways

The India-UAE DTAA (Double Taxation Avoidance Agreement) is a key pact that strengthens trade and economic ties between the two nations. With over $20 billion in trade and commerce, the agreement has helped both countries grow their economies by encouraging investment and smoother business operations. For individuals and businesses, this agreement ensures you don’t have to pay taxes twice on the same income in both countries. By claiming tax benefits under the DTAA, you can save money on taxes for a given year. If you earn income from the UAE (or vice versa), make sure to declare it in the right sections while filing your taxes to take full advantage of these exemptions and save on unnecessary tax payments.

If you’re still confused about the DTA’s contact our experts at Arnifi to get instant clarification.

Also Read – Double Taxation Agreement Between Swiss & UAE