Utilizing Double Taxation Treaties: Avoiding "Tax Twice" Traps

For organizations with employees working across borders, it's imperative to know the treaty benefits for cross border employees for effective tax planning. In the UAE, the personal income isn't taxed, but cross-border business interests and investments can invite obligations both in the UAE and your home country.

That's why the authorities in the UAE have established Double Taxation Agreements (DTAs) to prevent the same income from being taxed twice. These agreements also clarify the country that reserves the taxing rights.

What is a Double Tax Treaty with the UAE?

A DTA is an agreement signed between the UAE and another country, so that the same income isn't taxed in both jurisdictions. Since no tax is imposed on personal income in the UAE, DTAs determine the country that reserves the right to tax the income arising from business activities or investments.

Apart from preventing double-taxation, these agreements also:

• Facilitate international business and trade
• Strengthen economic ties with global partners
• Adapt to global economic changes to remain relevant

Taxes Covered by UAE Double Tax Treaties

The zero-tax policy of the UAE means DTAs mostly focus on business income rather than personal income. Some of the key areas included under the scope of DTA are:

1. Corporate Tax

Businesses in the UAE need to pay a 9% corporate tax on profits exceeding AED 375,000. However, companies engaged in oil and gas trading, or foreign bank branches, need to pay higher rates of tax.

2. Value-Added Tax (VAT)

A 5% VAT applies to businesses if taxable supplies exceed AED 375,000.

3. Foreign Permanent Establishment (PE)

Income earned abroad through a foreign PE may be excluded from UAE corporate tax, which avoids double taxation.

A PE can be a branch, office, factory, or an agent carrying out business for an organization in the UAE.

How Double Tax Treaties Work

DTAs are designed to reduce double taxation or eliminate these obligations. These agreements work on the basis of mechanisms like:

Tax Credit and Tax Exemption

Taxes paid in one country can be credited or exempted in the other. The exact rule depends on the terms prescribed in the treaty.

Withholding Tax Credit (WHT)

If foreign withholding taxes are applied to dividends, interest, or royalties, UAE-resident entities may claim a credit to reduce UAE corporate tax.

The exact type of relief depends on the terms outlined in the treaty and the nature of the income. This ensures that cross-border earnings are taxed fairly.

The Role of Tax Residency

Tax residency is one of the factors that significantly affects how a DTA should work.

• Residents are usually taxed on global income and are entitled to claim treaty benefits.
• For non-residents, the tax is applied only on income sourced from the UAE or through a UAE PE.

UAE tax residency is generally established if you:

• Spend 183 days or more in the UAE per year, or
• Spend 90 days or more with primary residence and financial ties in the UAE.

In case the residency is claimed in multiple countries, DTAs use tiebreaker rules. The following factors are considered in these cases:

• Considering a permanent home
• Centre of vital interests
• Habitual abode
• Nationality

These aspects are weighed to determine the country that reserves the taxing rights.

Applying for Tax Relief under a UAE DTA

Here's how businesses can claim the benefits under a DTA:

1. Obtain a Tax Residency Certificate (TRC)

Businesses must obtain a TRC tax residency in the UAE and access the benefits of the treaty. The EmaraTax platform of the FTA accepts applications, and it usually takes 5-7 days for them to get processed.

2. Identify Relevant Treaty Provisions

The next step involves determining the type of relief that applies. IT may be a:

• Tax credit
• Exemption
• WHT credit

At this stage, the country holding the primary taxing rights is also determined.

3. Provide Supporting Documents

Lastly, businesses need to submit the proof of taxes they paid, the TRC, financial statements, and other necessary records. Most companies seek expert guidance to streamline the process and remain compliant.

UAE Double Tax Treaties Worldwide

In 2025, the UAE has over 140 DTAs in place. Some of these include agreements with key economies like the UK, India, China, and Singapore. Some of the recent treaties include those with Bahrain, Kuwait, Qatar, the Czech Republic, and Austria, a few of which have been amended to comply with OECD tax standards.

The scope of each treaty varies, and covers different types of income, withholding tax rates, and residency rules. For example:

Residents in the UAE benefit from reduced or exempted foreign taxes. On the other hand, UAE withholding taxes remain at 0%.

Strategic Compliance Tips for Businesses

Here are some of the effective strategies businesses must adopt to make the most of DTAs:

• Obtain a Tax Residency Certificate (TRC) that can help in reducing withholding tax rates
• Follow arm's-length pricing rules for intra-group transactions to avoid audits
• Resolve cross-border tax disputes using the Mutual Agreement Procedure (MAP)
• Plan for the 15% Domestic Minimum Top-up Tax (DMTT) in the UAE on MNCs earning above €750M, which has been made effective January 2025

Global Mobility Tax Solutions for a Smarter Business Future

In the UAE, forward-thinking organizations strive to understand DTAs and apply them effectively. With Global mobility tax services from the IMC Group, businesses and expatriates can clarify tax residency and treaty entitlements. They can strategically manage corporate taxes and comply with established norms while optimizing cross-border tax efficiency. Partner with the IMC Group today to protect your business and workforce from double taxation risks.

References:

https://titanwealthinternational.com/learn/double-taxation-agreement-uae/

https://titanwealthinternational.com/learn/uae-double-tax-treaties-list/

https://www.creationbc.com/news/how-double-taxation-agreements-dtas-can-help-uae-businesses-lower-tax-liabilities/

https://www.middleeastbriefing.com/news/an-overview-of-the-uaes-double-tax-avoidance-agreement-dta-treaty-network/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.