The aim of the France and UAE Double Tax Treaty is to prevent an individual or business from being taxed twice on the same income. Originally signed on 19 July 1989 by the governments of France and the United Arab Emirates, and amended in 1993. The agreement entered into force on 1 December 1990, and since 1 January 2019, it’s been a part of a global effort to stop countries losing tax revenue in an unfair way. The Treaty applies to residents of either country or both and covers several taxes, including income taxes, corporate taxes, and social contributions on profits in France.
The Treaty consists of 29 articles and a protocol providing rules for preventing double taxation through tax credits, exemptions and other methods. It also encourages collaboration and information exchange between the tax authorities of both countries. The careful description of taxation rules simplifies cross-border trade, investment and business activity between France and the UAE.
What is the France and the UAE Double Tax Treaty?
The France-UAE double tax treaty is a taxation agreement which avoids people or businesses from being taxed on the same income in both countries. The Treaty is applicable when the income is generated in one country and the individual or company is residing in the other country. The Treaty provides certainty as to where the income will be taxed between the two countries, making financial transactions more accommodating and fair. The Treaty not only reduces tax costs for individuals but it also promotes better economic relations, trade and investment between France and the UAE.
Key Aspects of the France-UAE Double Tax Treaty
The France-UAE double tax treaty plays a very important role in making it clear when income is taxed in both countries. The agreement has the advantage of preventing individuals and businesses from paying tax on the same income in both jurisdictions while supporting the principle of fair treatment for both jurisdictions. The agreement also states the tax treatment of different types of income, including profits, dividends, capital gains, and royalties.
Residence and Permanent Establishment
The agreement identifies residents of either France or the UAE for tax purposes. If a person or entity is a resident of both jurisdictions, special tests are applied to determine residency for the purposes of taxation. Businesses will be treated as having a Permanent Establishment (PE) if they have maintained an office, branch, or location in the jurisdiction. Only profits generated at that PE will be taxed in those jurisdictions, representing a clarified and equitable means of taxation.
Taxation and Withholding
One of the Treaty’s main advantages is the observance of a 0% withholding tax for certain types of income. Tax treaties allow dividends, interest, and royalties to flow between France and the UAE in a withholding tax-free manner. For example, a company in France that makes royal payments to a UAE investor, or a business in the UAE that makes royal payments to France, will not incur additional tax as a result of those payments in the source jurisdictions. It facilitates greater cross-border investment and business partnerships.
Capital Gains
The Treaty outlines the taxation rights based on the type of asset sold. The country where the real estate is located will retain taxing rights over any profits from the disposal of the real estate. Profits from the disposition of shares of companies that principally own real estate in France will be taxed in France as well. However, the tax will only be levied in the seller’s country of residence for all other types of assets.
Employment Income
For salaried workers, individuals in the UAE typically do not owe tax in France unless they physically perform work activities in France for more than 183days a year. French residents experience the same treatment, with exemptions depending on certain conditions, or so-called “international tax relief” as taxpayers cannot have dual tax obligations for compensated work operated in the UAE or France.
Profits from Business and Permanent Establishment
A foreign corporation has a tax obligation in a country only if it has a permanent establishment in that country. A permanent establishment may be considered a branch, factory, office, or workshop. Construction or installation projects are only considered a permanent establishment if they last longer than six months. A dependent agent who regularly negotiates contracts on behalf of a company from abroad is typically considered to create a permanent establishment in the host country.
Royalties and Interest
Royalties and interest payments between France and the UAE are both subject to a 0% withholding tax under the Treaty. It means that companies and individuals can receive such payments without incurring additional tax in the country where the income arises. Nevertheless, French residents will likely still have a local income tax and social charges to pay under local laws.
Inheritance and Wealth Tax
With respect to inheritance tax, the Treaty refers primarily to real estate located in France. For wealth tax, non-residents are only taxed on real estate owned in France. If the assets are not located in France, then they are not taxed, which is good for the taxable person living in the UAE and possibly owning property or investments in France.
Tax Residency and Benefits
UAE residents will need to get a Tax Residency Certificate from the UAE Federal Tax Authority so they can benefit from the Treaty. The agreement includes some anti-abuse provisions to ensure that benefits are only available for individuals who have substantive economic activities in either country.
Who Gains from the Treaty?
The France-UAE double tax treaty offers many benefits to people and businesses with economic linkages between the two jurisdictions. The Treaty provides for double taxation relief and fairness, allowing for cross-border trade and investment that does not discourage or hold back.
Workers and businesspeople
People living in one country and earning income from the other (for example, a French worker in the UAE, or a person resident in the UAE who earns income from France). Gaining clear benefits under the Treaty, they will not be subjected to double taxation on compensation or pensions, which facilitates financial planning and reduces taxes on them as earners.
Enterprises and Organizations
Companies operating in the two countries benefit from a reduced or zero withholding tax on dividends, interest, and royalties. They also received assurances on how profits would be taxed when they have a permanent establishment overseas. The transparency supports companies in planning their investment with increased confidence and in growing without the concern of being taxed twice.
Investors and Shareholders
Investors, whether in real estate or shares of businesses throughout France and the UAE, benefit from lower rates of tax on returns or total exemptions. The reduced tax burden and legal certainty about taxes owed help to encourage long-term investment and mean that each jurisdiction becomes more attractive to investors globally.
How Al Riyady Can Assist
Al Riyady is able to assist individuals and businesses in locating excellent outcomes under the France-UAE double tax treaty, maximizing tax benefits while avoiding double taxation. Our team offers straightforward assistance regarding residency, permanent establishment, and rules surrounding cross-border income. We also support clients with tax residency certificate applications and compliance with France and UAE tax laws. Al Riyady helps clients to manage their international investments and business dealings while minimizing tax.
