Do I need to Pay Foreign Tax and Double Taxation?
Under the upcoming UAE Corporation Tax regime, foreign companies will be subject to the corporate tax rate of 9% on annual taxable income exceeding AED 375,000.
However, this is usually only applicable to businesses which conduct trade or do a business in the UAE on a regular basis. Foreign investors on the other hand would have a separate treatment. Corporation tax would not normally by levied on dividends, capital gains, interest and royalities.
Foreign Tax Circumstances
To qualify for the 9% annual tax rate a foreign company operating in UAE has:
- Their Permanent Establishment (PE); or
- Their Place of Effective Management; or
- Their source of income.
Double Taxation can occur when two countries tax the same income. It can also occur on a corporate and personal level, as can be the case with stock dividends.
International Double Taxation
Income may be taxed in the country where it is earned, and then taxed again when it is received in a business’ home country.
Countries around the world have signed hundreds of treaties for the avoidance of double taxation, often based on models provided by OECD. These treaties are made by nations agreeing to limit taxation of international business in an effort to strengthen trade, and to avoid double taxation.
Foreign Corporation Tax paid on UAE taxable income is expected to me allowed as a tax credit or deduction against the UAE CT liability subject to certain requirements.