The double tax treaty signed between the United Arab Emirates (UAE) and the French Republic, effective from December 1, 1990, addresses issues of double taxation and fiscal evasion concerning taxes. It applies to residents of either or both countries and covers various taxes. In France, this includes income tax, corporation tax, social contributions on corporate profits, and similar taxes introduced after the treaty's signing. Comprising 29 articles and a protocol, this comprehensive agreement seeks to resolve double taxation through mechanisms like tax credits or exemptions under specific conditions. Additionally, the treaty facilitates the exchange of information and cooperation between the competent authorities of both nations in tax-related matters, with the protocol providing clarification and modifications to certain treaty articles.
Key Provisions of France-UAE Double Tax Treaty
Capital Gains Tax Under France-UAE DTT
It pertains to the taxation of profits originating from the sale of assets at a price exceeding their initial purchase value. In France, capital gains are susceptible to income tax and social charges and might even encounter withholding tax in the source country, unless a Double Tax Treaty designates which country has the taxing rights. The France-UAE Double Tax Treaty states that if you sell immovable property, any capital gains will be taxed in the country where the property is situated. For shares of real estate companies, taxation takes place in the country where the company resides. Capital gains from the sale of non-real estate assets are subject to taxation in the seller's country of domicile. Specific exceptions and unique rules are in place for particular asset types like business property, intellectual property, ships, and aircraft. In France, the tax rate for capital gains is a fixed 19%, alongside social charges at a flat rate of 17.2%. Nevertheless, there are various allowances and exemptions based on the asset type and how long it has been owned. It's important to note that the UAE generally does not impose capital gains tax on most assets, with certain exceptions for oil companies and branches of foreign banks.
Dividends Under France-UAE Double Tax Treaty
Within the French tax system, dividends signify the profits shared among a company's shareholders, and they are subject to income tax and social charges. Additionally, they may encounter withholding tax in the source country, except when a double taxation agreement (DTA) steps in to reduce or eliminate this tax. The DTA between France and the UAE enforces a 0% withholding tax rate on dividends for residents of both countries. However, if French residents receive dividends from the UAE, they are still responsible for income tax and social charges in France, unless they qualify for specific exemptions or reduced rates.
Interest Under France-UAE Double Tax Treaty
In financial terms, it is the sum a borrower remits to a lender as compensation for using borrowed funds. France imposes income tax and social charges on interest income, which could also be subject to withholding tax in the source country unless a DTA lessens this tax burden. The France-UAE DTA sets a 0% withholding tax rate on interest payments exchanged between the two nations. Nevertheless, French residents getting interest income from UAE sources remain subject to income tax and social charges in France, provided they meet particular criteria for exemptions or reduced rates.
Comprehending Permanent Establishment (PE)
A Permanent Establishment (PE) signifies a legal construct wherein a foreign corporation falls within the scope of corporate taxation within the jurisdiction where it operates from a fixed place of business or conducts substantial activities. In the context of the UAE-France double tax treaty, the definition of a PE encompasses the following:
- A PE incorporates a diverse range of entities, comprising branches, offices, factories, workshops, mines, oil or gas wells, quarries, and other facilities involved in the extraction of natural resources.
- Additionally, it extends to cover construction sites, assembly projects, installation endeavours, or the supervision of such undertakings, as long as they persist for more than six months.
- On the contrary, a PE excludes facilities primarily employed for storage, product display, delivery, procurement, data collection, advertising, scientific research, or other preliminary or auxiliary functions.
- An exception applies when an agent, acting on behalf of the foreign company, is considered a PE if this agent has the authority to regularly conclude contracts on the company's behalf in the host country.
Impact Of Double Tax Treaty on Permanent Establishment
The UAE-France double tax treaty delineates the allocation of tax rights concerning the profits of foreign corporations to the jurisdiction where a PE is established. The treaty mandates that the profits attributed to the PE are assessed as if it were an independent entity operating under similar conditions to the foreign corporation. The overarching objective of this treaty is to mitigate double taxation by providing avenues for tax credits or exemptions to residents of one nation for taxes paid in the other. Nonetheless, it's imperative to recognize that these treaty provisions do not cover income that is already exempt from taxation according to the treaty.
Royalties under the Double Tax Treaty
Royalties denote payments associated with the utilization or licensing of intellectual property, encompassing elements such as patents, trademarks, and designs. In France, income tax and social charges are typically applied to these royalties. The country where these royalties originate typically enforces a withholding tax unless a double taxation treaty intervenes to reduce or nullify this tax. Significantly, in the context of the UAE-France treaty, a 0% withholding tax rate is imposed on royalties exchanged between the two nations. However, it's crucial to note that French residents who receive royalties from sources in the UAE may still find themselves subject to income tax and social charges in France, provided they do not meet specific criteria that grant exemptions or reduced tax rates contingent on particular circumstances.
Important Provisions Under Double Tax Treaty- An Overview
The double tax treaty includes articles that define important terms and principles. These cover topics like "resident" status, "permanent establishment," income from various sources, and taxation of profits. Specific articles address dividends, interest, royalties, and gains from property sales. There are also provisions related to income from professional services and employment-related income. These articles serve to clarify taxation principles between the contracting states. For more details about the double tax treaty consult our tax consultant in Dubai.