Query:
Discuss DTAA with UAE in detail comprehensively covering various tax rates, agreements,
compliance requirements etc?
Answer:
Double Taxation Avoidance Agreement (DTAA) between India and UAE
1. Introduction
The Double Taxation Avoidance Agreement (DTAA) between India and the United Arab
Emirates (UAE) is a bilateral tax treaty designed to prevent double taxation of income
earned in one country by a resident of the other country. This agreement aims to promote
economic cooperation between India and UAE by providing clarity on tax matters and
preventing fiscal evasion.
The DTAA between India and UAE was originally signed on April 29, 1992, and has been
amended through subsequent protocols to keep it updated with changing economic
scenarios and international tax standards. The agreement covers various types of income
and provides guidelines on how they should be taxed in both countries.
2. Relevant Standard/Law References
a. The primary document governing the tax relationship between India and UAE is the
“Agreement between the Government of the Republic of India and the Government of the
United Arab Emirates for the avoidance of double taxation and the prevention of fiscal
evasion with respect to taxes on income and on capital” Income Tax – Notification No G S
R 710(E) – dated 18111993 – Income Tax, page 1.
b. The agreement has been amended through protocols, with significant changes
introduced in 2007 and 2013 Income Tax – Notification No 2822007 – dated 28112007 –
Income Tax, page 1, Income Tax – Notification No 292013 – dated 12042013 – Income Tax,
page 1.
c. The agreement covers various types of taxes, including income tax and any surcharge
on income tax in India, and income tax in the UAE Income Tax – Notification No G S R
710(E) – dated 18111993 – Income Tax, page 1.
d. The DTAA also interacts with domestic tax laws of both countries. In India, this includes
the Income-tax Act, 1961, and various circulars and notifications issued by the Central
Board of Direct Taxes (CBDT).
3. Detailed Explanations
3.1 Scope and Applicability
The India-UAE DTAA applies to persons who are residents of one or both of the
Contracting States. It covers taxes on income imposed on behalf of each Contracting
State, irrespective of the manner in which they are levied Income Tax – Notification No G S
R 710(E) – dated 18111993 – Income Tax, page 1.
3.2 Residency and Eligibility
One of the key aspects of the DTAA is determining the residency status of individuals and
entities. This is crucial because it affects the tax treatment of various types of income.
a. For individuals, the residency is determined based on factors such as permanent home,
center of vital interests, habitual abode, and nationality.
b. For companies and other entities, the place of effective management is generally
considered for determining residency.
It’s important to note that the absence of personal income tax in the UAE has led to some
complexities in interpreting residency for DTAA purposes. However, judicial precedents
have established that UAE residents can still avail DTAA benefits 2010 (10) TMI 1259,
page 1.
3.3 Tax Rates under DTAA
The DTAA specifies reduced tax rates for various types of income:
a. Dividends: The tax rate on dividends is capped at 5% of the gross amount if the
beneficial owner is a company that owns at least 10% of the shares of the company paying
the dividends. In all other cases, it is limited to 15% Circular No. 734, Dated 24/1/1996,
page 1.
b. Interest: The tax rate on interest is limited to 5% of the gross amount if paid to a bank or
similar financial institution. In all other cases, it is capped at 12.5% Circular No. 734, Dated
24/1/1996, page 1.
c. Royalties: The tax rate on royalties is limited to 10% of the gross amount Circular No.
734, Dated 24/1/1996, page 1.
3.4 Capital Gains
The treatment of capital gains under the India-UAE DTAA is particularly favorable. Article
13 of the DTAA stipulates that gains from the alienation of movable property, including
shares, are taxable only in the country of residence of the seller. This means that for a UAE
resident, capital gains from the sale of shares of Indian companies would be exempt from
tax in India 1996 (8) TMI 544, page 1.
3.5 Permanent Establishment
The concept of Permanent Establishment (PE) is crucial in determining the taxability of
business profits. If a UAE entity has a PE in India, its business profits attributable to that
PE may be taxed in India. The DTAA provides detailed guidelines on what constitutes a
PE, including fixed place of business, construction sites, and dependent agents Income
Tax – Notification No G S R 710(E) – dated 18111993 – Income Tax, page 12.
3.6 Exchange of Information
The 2013 amendment to the DTAA significantly enhanced the provisions for exchange of
information between the tax authorities of India and UAE. This allows for greater
transparency and helps in preventing tax evasion Income Tax – Notification No 292013 –
dated 12042013 – Income Tax, page 1.
3.7 Limitation of Benefits
The DTAA includes a Limitation of Benefits (LOB) clause to prevent treaty shopping. This
clause ensures that the benefits of the DTAA are only available to genuine residents of
India and UAE Income Tax – Notification No 292013 – dated 12042013 – Income Tax, page
1.
3.8 Compliance Requirements
To avail the benefits of the DTAA, taxpayers need to fulfill certain compliance requirements:
a. Obtain a Tax Residency Certificate (TRC) from the UAE authorities. b. File Form 10F
with Indian tax authorities, providing additional information not covered in the TRC. c.
Maintain necessary documentation to substantiate the claim for treaty benefits.
For further authoritative guidance, please refer to the full Agreement between the
Government of the Republic of India and the Government of the United Arab Emirates for
the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes
on income and on capital on the official website of the Income Tax Department of India.
4. Used Cases/Interpretations & Disclosures by the listed entities
Several Indian companies have provided guidance to their shareholders regarding the
application of the India-UAE DTAA:
1. Symphony Limited (2021):
º Shareholders must declare their tax residency status and provide a valid Tax
Residency Certificate.
º Confirmation that the main purpose of the arrangement is not to obtain tax benefits
under the applicable tax treaty.
º Declaration that the shareholder does not have a Permanent Establishment in India.
2. Amara Raja Energy & Mobility Limited (2023):
º Confirmation of tax resident status in UAE.
º Declaration of eligibility to claim treaty benefits.
º Confirmation that affairs were not arranged to obtain tax benefits as the main
purpose.
3. Nestlé India Limited (2023):
º Confirmation of beneficial ownership of shares and dividend income.
º Declaration of no Permanent Establishment or fixed base in India.
º Confirmation that affairs were not arranged to obtain tax benefits as the main
purpose.
4. Multibase India Ltd (2022):
º Confirmation of beneficial ownership of shares and dividends.
º Declaration of eligibility for treaty benefits, including compliance with Limitation of
Benefits provisions.
º Confirmation of no Permanent Establishment in India.
These examples demonstrate that Indian companies are actively implementing the
provisions of the India-UAE DTAA and providing guidance to their shareholders to ensure
compliance and proper availing of treaty benefits.
5. Summary
The Double Taxation Avoidance Agreement between India and UAE provides a
comprehensive framework for avoiding double taxation and preventing fiscal evasion. Key
features of the DTAA include:
1. Reduced withholding tax rates on dividends, interest, and royalties.
2. Exemption of capital gains on movable property for UAE residents.
3. Detailed provisions on Permanent Establishment to determine taxability of business
profits.
4. Enhanced information exchange provisions to improve transparency.
5. Limitation of Benefits clause to prevent treaty abuse.
To avail DTAA benefits, UAE residents must obtain a Tax Residency Certificate, file Form
10F, and maintain necessary documentation. The agreement has been subject to judicial
interpretation, with courts generally taking a favorable view towards UAE residents claiming
treaty benefits, even in the absence of personal income tax in the UAE.
Indian companies have implemented procedures to allow their UAE-resident shareholders
to claim DTAA benefits, requiring declarations of residency, beneficial ownership, and
absence of treaty abuse.
For comprehensive and up-to-date guidance, taxpayers should consult the latest version of
the DTAA and seek professional advice to ensure full compliance with both Indian and UAE
tax laws.
6. Attribution
The information provided in this response is based on the Agreement between the
Government of the Republic of India and the Government of the United Arab Emirates for
the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes
on income and on capital as issued by the Ministry of Finance, Government of India. The
specific rules referenced are from various notifications and circulars issued by the Central
Board of Direct Taxes, India. For complete and authoritative guidance, please refer to the
full Agreement and related documents available through the official website of the Income
Tax Department of India.
Neurasix_Ai_response (86) Double Taxation with UAE
