Overview
UAE has an extensive network of taxation treaties which has grown over the years. In the UAE, there are no personal tax laws at the moment. Though, the recently implemented UAE Corporate Tax Law has significant impact on companies conducted business and commercial activities in the UAE. The domestic taxation system provides for measures of reliefs and deductions with differentiated tax rates. In this article, we will discuss about UAE-India Tax Treaty, applicable rates and its relevant implications.
Corporate Income Tax UAE
The United Arab Emirates (UAE) is a popular destination for many business houses and individuals who are looking for a tax-friendly environment. However, starting from June 1, 2023, the UAE has introduced a new corporate tax law that will affect some of the businesses operating in the country.
The law will apply to all businesses that are residents or have a PE in the UAE, except for some exempt entities such as free zone entities, extractive businesses, banks, etc. It will also allow some deductions and allowances for expenses and losses, and introduce some anti-avoidance measures and reporting requirements.
The UAE CT Law will be administered and enforced by the Federal Tax Authority. Businesses should prepare for the new tax regime by assessing their tax exposure and seeking professional advice if needed.
It is to be noted that no UAE CT shall be applicable on dividends, capital gains, and other income earned from any investments earned by a foreign investor.
Capital Gains Tax in the UAE
Domestic Capital Gains Tax Rate in UAE
On Corporates:
The UAE does not levy a domestic capital gains tax on most transactions. This favorable tax treatment attracts investors and encourages economic growth in the country. However, certain industries, such as oil and gas exploration and production companies and branches of foreign banks, may be subject to capital gains tax.
On Individuals:
Currently, there is no personal tax income in the UAE i.e., there is no capital gains tax imposed on UAE nationals or resident individuals.
Withholding Tax Rate on Capital Gains
Under the domestic capital gains tax regime in the United Arab Emirates (UAE), the withholding tax rate is generally 0%, with the exception of oil and gas exploration and production companies and branches of foreign banks. This means that individuals and companies selling assets or investments in the UAE are not subject to withholding tax on their capital gains unless they fall into one of the aforementioned categories.
Capital Gains Tax under UAE-India Tax Treaty
In the context of the UAE-India Tax Treaty, the capital gains tax rate varies depending on the nature of the property being transferred. taxation rights have been given to India for various transactions, the list for which has been provided below. However, for gains arising from any other type of property, the capital gains tax rate is 0%.
| Capital Gain | Withholding Tax Rate |
| Domestic Capital Gains Tax Rate in UAE | 0% (except for oil and gas exploration and production companies and branches of foreign banks) |
| Capital Gains Tax incurred by UAE residents under UAE-India Tax Treaty | Gains from:
Gains from the alienation of any other property taxable only in UAE |
| Beneficial Rate that may be opted by a tax resident, selling shares of a UAE Company | 0% |
Tax on Dividends in UAE
Domestic Dividend Tax Rate in UAE
The UAE does not levy a domestic tax on dividends either on corporations or on individuals receiving dividends in the UAE.
Withholding Tax Rate on Capital Gains
There is no withholding tax rate on dividends under the domestic laws of the UAE.
Tax on Dividends under UAE-India Tax Treaty
The dividend tax under the UAE-India tax treaty is the tax that applies to dividends paid by a company resident in one country to a resident of the other country. Under the Tax Treaty between India and UAE, dividends paid by a company that is a resident of UAE to a resident of India shall be taxed at the maximum rate of 10%. One would need to evaluate the taxation of such dividends in India, based on domestic tax laws of India.
| Dividend | Withholding Tax Rate |
| Domestic Dividend Tax Rate in UAE | NIL |
| Tax on Dividend paid by a UAE company under UAE India Tax Treaty in UAE | 10% |
| Beneficial Rate that may be opted by a tax resident, receiving dividend from a UAE company | NIL |
Tax on Interest earned in the UAE
There is no domestic tax on interest earned in the UAE, either on corporates or individuals.
Interest earned in one country and received by a resident of another country may be subject to tax in both countries. However, the maximum rate of tax that can be withheld on interest is 5% of the total interest amount if it pertains to a bank loan or 12.5% for all other cases.
The term “interest” includes earnings from various types of debt claims, regardless of whether they are backed by a mortgage or grant a right to share in profits. This includes income earned from government securities, as well as income derived from bonds or debentures, including any additional payments or rewards associated with such securities, bonds, or debentures.
| Type of interest | Withholding tax rate (As per UAE-India Tax Treaty) |
| Interest on bank loan | 5% on the gross amount of interest |
| Any other interest | 12.5% on the gross amount of interest |
| Interest | Withholding Tax Rate |
| Domestic Interest Tax Rate in UAE | NIL |
| Tax on Interest paid by a UAE company under UAE India Tax Treaty in UAE |
|
| Beneficial Rate that may be opted by a tax resident, receiving interest from a UAE company | NIL |
Tax on Royalties in UAE
There is no domestic tax on royalty earned in the UAE, either on corporates or individuals.
If a resident of one country receives payments for the use or supply of certain rights, property, knowledge, or information from a company resident in the other country, such payments are called royalties and may be taxed by both countries. However, the country where the company paying the royalties is a resident can only tax up to 10% of the gross amount of royalties if the recipient is a resident of the other country. This applies to payments for:
- Using or allowing the use of any work protected by copyright, such as books, films, music, etc., or any patent, trademark, design, or secret formula;
- Using or allowing the use of any equipment for industrial, commercial, or scientific purposes;
- Providing or allowing to access any scientific, technical, industrial, or commercial knowledge or information;
- Providing any help that is related to and needed for using or enjoying any of the above.
| Royalty | Withholding Tax Rate |
| Domestic Royalty Tax Rate in UAE | NIL |
| Tax on Royalty paid by a UAE company under UAE India Tax Treaty in UAE | 10% |
| Beneficial Rate that may be opted by a tax resident, receiving royalty from a UAE company | NIL |
Tax on Fee for Technical Services (FTS) in UAE
There is no domestic tax on FTS earned in the UAE, either on corporates or individuals.
This applies to services that:
- Are related to and needed for using or enjoying the right, property, or information for which a royalty payment is made;
- Are related to and needed for enjoying the immovable property for which an income payment is made;
- Involve sharing or transferring technical knowledge, experience, skill, know-how, or processes, or developing and transferring a technical plan or design.
Currently, there is no provision in the UAE-India Tax Treaty that deals with the taxation of fees for Technical Services. Therefore there are no withholding taxes on fees for technical services.
It is advisable to consult a tax professional before entering into any transaction that may involve such payments. If you have any questions or need any assistance, please feel free to contact us or visit our website.
