Double taxation entails taxation of income in different states. The same income, in the absence of an agreement for avoidance of double taxation, may be subject to taxation in two countries.
Each country, exercising fiscal policy, employs two types of taxes:
- Taxation of global income of its residents;
- Taxation in the place of business and economic activities.
If all countries in the world have concluded general agreement relating to the aforesaid issue, the problems would not exist. However, tax burden and rates in different countries differ. Whereas many countries in practice employ both approaches, that consequently results in double taxation.
To prevent such taxation, various governments have concluded special agreements between them. Such agreements abolish double taxation of income in different countries. Such agreements are entered into primarily for promotion and development of international cooperation.
It should be noted that only limited types of companies and taxes are subject to such arrangements. In case of the United Arab Emirates - such agreements only apply to resident companies. For individuals - only tax residents of the UAE can enjoy benefits of double tax agreements.
In most cases, the benefits of such agreements may be facilitated by onshore company when applied, for example, on taxes on interest and dividends.
In order to be able to enjoy tax exemptions benefits, the company shall obtain certificate of residency issued by appropriate tax authority, confirming the residency of the legal entity, or in other words a tax residence certificate.
As for possibility of operating a company in the UAE to take advantage of agreements for avoidance of double taxation - the UAE has signed plenty of such agreements with other countries and, therefore, the company in Dubai, UAE may enjoy many advantages and opportunities.
