Double tax agreements, also known as DTAs, are agreements between two countries that aim to prevent individuals and companies from being taxed twice on the same income. These agreements outline the rules on how tax is to be paid and how it is to be divided between the two countries.
The United Kingdom and the United Arab Emirates have a double tax agreement in place that was signed on 12 April 2016. This agreement came into effect on 1 January 2017 and applies to individuals and companies who are resident in one or both countries.
Under this agreement, income received by a resident of one country is taxable only in that country and is exempt from tax in the other country. However, this does not apply to income from a business carried out in the other country or income from employment in that country.
In the case of income from a business carried out in the other country, the income may be taxed in that country, but the tax paid can be offset against the tax due in the resident country. This is to ensure that the income is not double-taxed.
In the case of employment income, the income may be taxed in the country where the work is carried out. However, if the individual is a resident of the other country, the tax paid can be offset against the tax due in the resident country.
This agreement also covers other areas such as dividends, royalties, and interest income. Dividends paid by a company resident in one country to a resident of the other country are subject to a maximum withholding tax rate of 5% or 15%, depending on the circumstances.
Royalties and interest paid by a resident of one country to a resident of the other country are also subject to a maximum withholding tax rate of 10%.
Overall, the double tax agreement between the UK and the UAE is designed to promote investment and trade between the two countries by providing clear rules on taxation. It is important for individuals and companies operating in both countries to be aware of the rules outlined in this agreement to avoid double taxation and to take advantage of any tax benefits available.
