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MUMBAI: Nearly 2.8 million Indians who are based in the UAE will currently not benefit from the newly introduced much-wider tax residency norms, which have come into effect from March 1. Contrary to perception in some quarters, merely by buying a house in Dubai, an individual cannot overnight become a UAE tax resident.
On the flip side, those who do business in the UAE will from June 1 have to bear a 9% tax if their business income exceeds the annual threshold of 3,75,000 Emirati dirham (Rs 83 lakh approximately). The decree – ‘Taxation of corporations and businesses’ – also covers individuals who conduct a business or business activity in the UAE.
Salary income for work done in the UAE, according to the India-UAE tax treaty, is taxable only in the Emirates if prescribed conditions such as period of stay are met. Further, individuals who qualify as tax residents of the UAE benefit owing to lower tax rates available under the treaty for India-source income. For example, interest income will be subject to tax in India only at 12.5% and dividend from Indian companies will be taxed at 10%.
The UAE Cabinet’s norms for defining a tax resident have set a wide range of alternate conditions rather than just a 183-day stay criteria prescribed in the India-UAE treaty. Meeting any one of these conditions qualifies an individual to be a UAE tax resident. For instance, if he/she has a permanent place of residence and the centre of their financial or personal interests are in the UAE, the individual could be treated as a UAE tax resident and be entitled to a tax residency certificate (TRC).
Rutvik Sanghvi, partner at CA firm Rashmin Sanghvi & Associates, points out, “The India-UAE tax treaty provides for a specific test wherein an individual has to be in the UAE for an aggregate period of at least 183 days in a calendar year to be considered a tax resident of the UAE and thus entitled to tax treaty benefits. But, article 6 of the UAE’s Cabinet decision states that the criteria laid down in international agreements will not be impacted by the new domestic residency rules. Hence, the Indian diaspora cannot take recourse to the wider new tax residency rules for accessing tax treaty benefits.”
Dinesh Kanabar, CEO of Dhruva Advisors, emphasises the need to renegotiate the India-UAE tax treaty to ensure that the tax residency criteria are consistent with UAE’s domestic laws. He refers to the recent decisions of the Delhi and Bombay high courts, which affirm that a valid TRC should entitle the person to tax treaty benefits.
On the flip side, those who do business in the UAE will from June 1 have to bear a 9% tax if their business income exceeds the annual threshold of 3,75,000 Emirati dirham (Rs 83 lakh approximately). The decree – ‘Taxation of corporations and businesses’ – also covers individuals who conduct a business or business activity in the UAE.
Salary income for work done in the UAE, according to the India-UAE tax treaty, is taxable only in the Emirates if prescribed conditions such as period of stay are met. Further, individuals who qualify as tax residents of the UAE benefit owing to lower tax rates available under the treaty for India-source income. For example, interest income will be subject to tax in India only at 12.5% and dividend from Indian companies will be taxed at 10%.
The UAE Cabinet’s norms for defining a tax resident have set a wide range of alternate conditions rather than just a 183-day stay criteria prescribed in the India-UAE treaty. Meeting any one of these conditions qualifies an individual to be a UAE tax resident. For instance, if he/she has a permanent place of residence and the centre of their financial or personal interests are in the UAE, the individual could be treated as a UAE tax resident and be entitled to a tax residency certificate (TRC).
Rutvik Sanghvi, partner at CA firm Rashmin Sanghvi & Associates, points out, “The India-UAE tax treaty provides for a specific test wherein an individual has to be in the UAE for an aggregate period of at least 183 days in a calendar year to be considered a tax resident of the UAE and thus entitled to tax treaty benefits. But, article 6 of the UAE’s Cabinet decision states that the criteria laid down in international agreements will not be impacted by the new domestic residency rules. Hence, the Indian diaspora cannot take recourse to the wider new tax residency rules for accessing tax treaty benefits.”
Dinesh Kanabar, CEO of Dhruva Advisors, emphasises the need to renegotiate the India-UAE tax treaty to ensure that the tax residency criteria are consistent with UAE’s domestic laws. He refers to the recent decisions of the Delhi and Bombay high courts, which affirm that a valid TRC should entitle the person to tax treaty benefits.
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