Tax On Income From Immovable Property And Business

What is the purpose of having an Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with UAE by India (DTAA) between UAE and India?

In the Present Era of cross border transactions across the globe, the effect of Taxation is one of the important considerations for any Trade and Investment decisions in another countries.
Where a taxpayer is resident in one country and but has source of income situated in another country, it gives rise to possible double taxation.
DTAA lays down rules for taxation of the income by the Source country and the residence country.
The Provisions of DTAA are compared with domestic law, assessee can opt for anyone which is beneficial to him.

This treaty was entered into by UAE and India with an aim to promote their economic relations and prevent tax evasion.

Scope

This DTAA agreement shall apply to persons who are residents of one or both of the Contracting States (UAE or India).

Taxes Covered

This agreement applies on the following existing taxes:

Income Tax, Corporation Tax and Wealth Tax in UAE
Income Tax and Wealth Tax in India

Following is the summary of the DTAA between UAE and India with respect to the income from immovable properties and Business profits:

Area of Income

Income earned in

Income taxed in

Remarks

Income from Immovable property

Resident of a country earning income from the other country

The Country where the property is situated

Business Profits

The Country where the enterprise is situated

The same Country where the income is earned

Exception:

If carries on business in other state through PE, then taxable in other state

Article 6 – Income from Immovable Property

Income derived from Immovable property is taxed in the country in which the property is situated whether from direct use, letting or use in any other form.

Article 7 – Business Profits

Generally, the profits of an enterprise situated in a country shall be taxable only in that country. If that enterprise carries on business in other country through a Permanent Establishment (PE) situated therein, the profits of an enterprise may be taxed in the other country to the extent attributable to that PE.
Deduction of Expenses including executive and general administrative expenses are allowed while determining the profits of the PE.
No profits shall be attributed to a PE by reason of mere purchase of goods or merchandise for the enterprise.
The profits to be attributed to a PE shall be determined by the same method every year unless there is sufficient reason to change.

Article 9 – Associated Enterprises

Where an enterprise of a contracting state participates directly or indirectly in the management, control or capital of an enterprise of other contracting state

The same persons participate directly or indirectly in the management, control or capital of an enterprise of a contracting state and an enterprise of other contracting state

then any profits which would have accrued to one of the enterprises, but for those conditions imposed between two enterprises, have not so accrued may be included in the profits of that enterprise and taxed accordingly.

Elimination of Double Taxation

Where a resident of India derives income or owns capital which, in accordance with the provisions of the agreement, may be taxed in UAE, India shall allow as a deduction from the tax on the income/capital of that resident an amount equal to Income tax or capital tax paid in UAE whether directly or by deduction.
Where a resident of UAE which in accordance with the agreement may be taxed in India, UAE shall allow as a deduction from the tax on income of that person an amount equal to income tax paid in India.
However such deduction shall not exceed that part of Income tax or capital tax as computed before the deduction is given.

Exchange of Information between the tax authorities of UAE and India

The competent authorities of contracting state shall exchange such information as is necessary for carrying out the provisions of the agreement or for the prevention or detection of evasion of taxes.

Limitation of Benefits

An entity which is a resident of a contracting state shall not be entitled to the benefits of this agreement if the main purpose of creation of such entity was to obtain the benefits of this agreement.

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