Double Taxation in UAE: An Overview

Don’t let Double Taxation in the UAE get in the way of your business. Unlock the potential of Double Taxation Agreements to slash your tax burden. This will help you compete with confidence in the UAE market. This is your sign to operate tax-smart and boost your profits.

What is Double Taxation?

Double Taxation in UAE can really hinder the performance of some businesses. It occurs when a business or person is taxed both in the country of business and another country. This is possible if the business or person has branches running in a different country, or if it earns income from another country.

This taxation system can prove to be difficult for businesses to operate. It can even lead to losses sometimes. That is why one should take the necessary steps to avoid falling into the pit of double taxation.

One way to avoid double taxation would be entering into a Double Taxation Agreement(DTA) with the other country. A DTA is an agreement between two countries that sets out how they will tax each other’s businesses and residents. A DTA agreement can help to avoid or eliminate double taxation, while also providing tax reliefs and exemptions. DTA works by determining which country has primary taxation rights over specific sources of income. The UAE country has a record of signing over 100 DTAs with other countries. Hence, if you are a company operating in the UAE, you may want to find out if your country has a DTA agreement with the UAE. This may help you to reap some additional tax benefits in the UAE.

How does Double Taxation affect businesses in the UAE?

Double Taxation in UAE can pose serious threats to the businesses operating in the UAE. This might affect the financial performance and global competitiveness of the businesses. A rate of 9% is charged on corporate profits which leads to a detrimental impact on businesses in several ways.

Double taxation in the UAE reduces the after-tax profit, discourages equity financing, and limits the availability of capital for businesses. It also increases the overall tax burden on shareholders, therefore reducing the overall return on investment. To avoid the issue of double taxation in the UAE, the government has introduced several methods to allow tax credits and exemptions for the dividends paid to shareholders. This is a measure taken to promote a more equitable tax system and invite businesses to conduct their operations in the UAE.

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Key Benefits of Tax Treaties in Preventing Double Taxation

To address the issues of double taxation, nations across the globe have forged hundreds and thousands of treaties to avoid this burden. These Double Tax Treaties (DTTs) are bilateral agreements between both countries to resolve the issue of double taxation in the UAE.

DTTs typically outline the admissible tax rates that a company is allowed to charge on a taxpayer’s income. This is done to provide taxpayers the certainty that they would not be taxed twice. The UAE after recognizing the need to foster cross-country economic growth, has agreed to DTT agreements with several countries. These treaties underline the tax obligations of businesses operating within the UAE and their respective treaty partners. The countries that UAE has signed DTT agreements with, include India, the UK, Germany, China, and France. This move has played a pivotal role in attracting foreign investments while promoting trade between the UAE and its treaty partners.

To sum it all, the treaties perform the following roles:

• DTTs have helped in the elimination the issue of double taxation
•  DTT’s have listed the taxing rights between two countries
•  DTT’s allow the exchange of information between two countries

About Arnifi

Arnifi is digital first Corporate service provider helping companies enter the Middle East region, starting with UAE and Saudi Arabia markets. Founded and backed by professionals from Amazon, Souq and other large companies operating in KSA – the team understands what it takes to succeed as a startup in both UAE and Saudi Arabian markets, apart from going through the setup process multiple times. Arnifi will provide a truly digital experience to entry and scale up of companies both UAE and Saudi Arabia. The Arnifi promise is simple, yet revolutionary, use technology and a great team to provide transparency, efficiency and great customer experience in the whole process. Check out at – www.Arnifi.com for more details.

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