How You Can Avoid Double Taxation Using Tax Residency Certificate

In the era of globalization, companies are not only inclined to just invest in their own backyard but are excited to invest globally. Setting up businesses in complex global destinations has become a priority for the business owners, however, choosing an investment destination is a strategic decision and requires careful consideration of Double Tax avoidance Agreement (DTAA) signed by the chosen destination.

The DTAA is an agreement signed between two or more states to help taxpayers to avoid paying tax or pay minimal tax on the same income. Setting up a company in a global business hub like the UAE is an attractive option due to the favourable tax regime, especially the double taxation avoidance agreement with many countries.

UAE is one of the business hubs in the world who is always keen to make taxation more efficient and smooth in the country by making tax reforms, signing MoUs and agreements with international bodies. The UAE doesn’t impose income tax on the individuals but oil companies and foreign banks are subject to the corporate tax. And since the implementation of the Value Added Tax (VAT) from January 1, 2018, the UAE has been on the forefront of making the tax system more effective and the Double Taxation Avoidance Agreement has been one of the major efforts that is beneficial for foreign investors who own companies in UAE.

What is UAE’s Double Taxation Agreement?

The UAE has reached Double Taxation Avoidance Agreement with more than 116 countries. The UAE’s Double Taxation Agreement has been environed as an effective method to save foreign entrepreneurs or individuals from the burden of being taxed in two countries at the same time. The imposition of tax on the same individual or company on the same tax base will hurt the exchange of goods, services, capital and technology between two countries or company.

With the Double Taxation Avoidance Agreement, the UAE aims to bolster its development goals and also aims to achieve diversification of sources of income. However, situations may arise if there is no double taxation agreement between UAE and certain countries. In such special cases, the Tax Residency Certificate could be used as an official document to prove the tax residency of an individual or an entity in UAE.

Major Objectives of Double Taxation Agreements

The Double Taxation Avoidance Agreement has proven to be a major step in bringing in a balance in the economy. With the implementation of such agreements, the UAE aims to curb obstacles in the flow of investment into the country apart from promoting the economic goals. Free movement of capital and the smooth exchange of goods and services have been ensured with the signing of these agreements. The following goals are envisioned to be achieved with the Double Taxation Avoidance Agreements:

1. Offering Protection to Foreign Investors

Attracting foreign investments has been one of the foremost objectives that have a striking influence on the further economic development of the UAE. The Double Taxation Agreements save the investors by offering protection to their investments in the UAE

• It safeguards the investments from non-commercial risks like transfer of profits
• The Agreement helps in conflict resolution
• The agreement ensures that UAE investors receive lawful and fair compensations

2. Sharing the Information Globally

Major taxation efforts like the Double Taxation Agreement bring efficiency, transparency and justice to the process of economic development. In this regard, the Ministry of Finance, UAE has reached an agreement with the Organization for Economic Cooperation and Development (OECD) in a bid to extend cooperation in the matter of taxation. The primary aim of this agreement has been the sharing of the information.

Tax Residency Certificate & Conditions for Eligibility

Tax Residency Certificate is officially issued by the Ministry of Finance, UAE which helps companies in the UAE save themselves from the burden of double taxation. The International Financial Relations and Organizations Department in the Ministry of Finance issues the certificate to companies who have completed 1 year in the UAE and individuals who have been a UAE resident for more than 183 days. Following are eligible for tax residency certificate:

• Companies on Mainland
• Companies in Freezone
• Individual investor or sole company owner
• An individual who is employed

Documents Required for Tax Residency Certificate (TRC)

The requirements for companies and individuals may vary for applying for tax domicile certificate. For example, a company should first check if it qualifies for the Tax Domicile Certificate as there are chances for rejection. Companies can avail the services of top business consultants in UAE before making a direct request with the Ministry of Finance.

• Valid Trade License
• Certified Articles of the establishment; incorporation; founding; institutionalizing or Memorandum of association
• Copy of identity card of company owners or partners or directors
• Copy of passports of company owners or partners or directors
• Copy of Residential Visa of company owners or partners or directors
• Certified audited report
• Certified bank statement for at least 6 months for the required year
• Certified Tenancy contract/ title deed
• A fee of AED 10,000

Documents Required for Individuals:

• Passport copy
• Valid residence copy
• Certified tenancy contract/ Title Deed
• Certified bank statement for at least 6 months for the required year
• Source of Income/ Salary Certificate
• Immigration Report of Residency
• A fee of AED 2,000 for issuing certificate; AED 110 Application Fee

Obtain Tax Registration Certificate in UAE Through Jitendra Chartered Accountants

Jitendra Chartered Accountants (JCA) has extensive experience in offering foreign investors expert advice in all stages of VAT registration & VAT filing. JCA offer you suggestions on the perfect investment structure that will help you decide on the perfect tax structure and avail the benefits of double taxation agreements. Our FTA approved tax agents in Dubai advise you on how to use right jurisdiction and double taxation treaties that will enable the optimization of your tax procedures. JCA’s team of VAT/Tax consultants in Dubai will assist you in the processing of all your statutory filings thereby help your firm meet all regulatory tax requirements.