The India-UAE Double Tax Avoidance Agreement (DTAA) is important for businesses. It applies to those operating between the two nations. Let’s understand this tax treaty in detail. It can help companies lower their taxes for the 2024 financial year.
What is the India-UAE DTAA?
The DTAA is a special agreement signed by India and UAE in 1992 to stop businesses paying double taxes. It aims to encourage more trade and investments.
The treaty’s key goal is to stop companies from paying taxes twice on the same income. This could happen if the income is taxed in India and UAE both.
Taxes Covered in the Treaty
The DTAA covers major taxes imposed by India and UAE governments:
- Income Tax: Charged by India on incomes like profits, interests, dividends etc.
- Corporate Tax: Introduced in UAE last year at 9% on company profits.
- Wealth Tax: Collected in India on net wealth over a limit.
By including these taxes, the treaty ensures companies get relief from double taxation on their incomes.
Tax Rates as per the Treaty
For different types of incomes, the DTAA prescribes maximum tax rates that can be charged:
- Interest Income: Up to 5% if from bank, 12.5% otherwise in the source country.
- Dividends: 10% maximum in the country of the distributing company.
- Royalties: 10% ceiling in the nation where royalty arises.
These rates are lower than normal individual country rates, offering savings to businesses.
Capital Gains Tax
The treaty clarifies that capital gains from sale of immovable assets like land are taxed where the assets are located. Gains on other movable assets are taxed only in the country of residence.
Relief from Double Taxation
When a company ends up paying taxes in both countries, the DTAA provides relief. The home country offers a tax credit equal to taxes paid abroad to eliminate double tax burden.
Example of Tax Savings
Let’s understand this with an example. A UAE company earned INR 2 crores profit from India in 2024.
- UAE Tax: 9% of INR 2 crores is INR 18 lakhs
- Maximum India Tax (as per DTAA): 10% of INR 2 crores is INR 20 lakhs
- UAE will provide a tax credit of INR 20 lakhs already paid in India
- Result is zero taxes paid in UAE. Savings of INR 18 lakhs.
Key Points While Claiming Benefits
Businesses must maintain documents like tax residency certificates of both countries to claim DTAA benefits smoothly.
Conclusion
In conclusion, the India-UAE tax treaty establishes a framework that helps businesses avoid the pitfalls of double taxation. By alleviating extra tax burdens through reductions and relief measures, it promotes strong trade and economic ties between the two nations via a business-friendly treaty.
FAQs
A. The treaty provides that business profits earned by a UAE company in India will be taxed only in the UAE at agreed lower tax rates, thereby avoiding double taxation in both countries.
A. The revised tax treaty signed in 2018 came into effect from April 1, 2024. It provides for more tax concessions compared to the earlier treaty.
A. The revised treaty lowers India’s tax rate on capital gains arising from sale of shares of an Indian company from 10-20% to 0%. It also lowers tax on royalty and fee for technical services income from 10-25% to 10%.
A. UAE companies investing in India through joint ventures, subsidiaries etc. will have to pay lower capital gains and withholding taxes. This will make India a more attractive investment destination.
A. Key sectors like infrastructure, real estate, financial services, healthcare, tourism are expected to get a boost with lower tax outgo under the revised treaty.
