Business Setup

When someone works, invests, or runs a business in more than one country, they can end up paying tax twice on the same income. For example, if you earn money in Country A and live in Country B, both countries may try to tax you. This can make international business expensive and discourage people from investing abroad.

A Double Tax Agreement (DTA) is a deal between two countries that prevents this. It spells out who pays tax, where they pay it, and how much they pay. The goal is simple: make cross-border income easier to manage and stop double taxation.

DTAs usually:

• Reduce or remove taxes for certain types of income
• Give investors legal protection
• Encourage trade and investment between countries
• Prevent tax evasion by allowing information exchange
• Help people and businesses avoid unexpected tax problems

Countries like the UAE have signed many DTAs to make the country more attractive to global companies and investors. These agreements support economic growth and help build strong international relationships.

The India–UAE Double Tax Avoidance Agreement

Now let’s look at how this works between India and the UAE.

India and the UAE signed their DTA in 1993. The agreement makes sure that residents of either country don’t get taxed twice on income like salaries, interest, dividends, royalties, and capital gains. It also supports investment and trade between the nations, which has grown rapidly over the years.

Why This Agreement Helps the UAE

The UAE uses DTAs to protect foreign investors. Under the agreement with India, investors get:

• Protection from non-commercial risks
• Fair compensation if property is taken for public reasons
• Clear rules on how cross-border income is taxed

This gives investors more confidence to bring money into the UAE.

Why This Agreement Helps India

India benefits through increased investment, jobs, and technology transfer. UAE companies feel more comfortable investing in India because the tax rules are predictable and fair. This has strengthened India’s economic ties with one of its most important trading partners.

Taxes Covered

The agreement covers taxes on:

• income
• capital
• gains from selling property

Both countries include multiple types of taxes under these categories, such as income tax, corporate tax, wealth tax, and surtax (in India).

Tax Rates Under the Agreement

The DTA sets limits to avoid heavy taxation:

Interest

• Usually taxed in the recipient’s home country
• Source country can tax up to 5% on bank loans and 12.5% in other cases

Dividends

• Taxed in the recipient’s home country
• Can also be taxed up to 10% where the paying company is based

Royalties

• Taxed in the recipient’s home country
• Source country may tax up to 10%

Capital Gains

Tax rules depend on the asset:

• Property: taxed where the property is located
• Shares of companies tied to property: taxed where the property is
• Other shares: taxed where the company is based
• All other gains: taxed in the seller’s country of residence

Income From Property

Rental income is always taxed in the country where the property is located.

How Double Taxation Is Removed

Both countries use a tax credit system:

• If an Indian resident pays tax in the UAE, India reduces their Indian tax by that amount
• If a UAE resident pays tax in India, the UAE reduces their local tax accordingly

This ensures income isn’t taxed twice. If you want to know more about how your business can benefit from DTA, get in touch with Gulf Central.