Protocol - Protocol - UAE

PROTOCOL At the signing today of the Agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income and on capital, the undersigned have agreed upon the following provisions which shall form an integral part of this Agreement : (i) Subject to the provisions of Article 5, nothing in this Agreement shall affect the right of the Government of the United Arab Emirates, its political sub-divisions, local authorities or local Governments to apply its own laws related to the taxation of income derived from the petroleum and natural resources; such activities will be taxed according to the laws of the United Arab Emirates ; (ii) Notwithstanding the provisions of Article 6 and Article 23, the residential property owned by a national of a Contracting State and occupied for self-residence in the other Contracting State shall be exempt in the other Contracting State from the taxes covered by this Agreement. In witness whereof, the undersigned, being duly authorised thereto, have signed this Protocol. Done in two originals at New Delhi on this Wednesday, 29th day of April, One Thousand Nine Hundred and Ninety-two corresponding to the 27th day of Shawwal 1412 H in the Hindi, Arabic and English languages, all texts being equally authentic. In case of divergence amongst the texts, the English text shall be the operative one. Judicial Analysis n Assessee is to be regarded as resident of India within meaning of para 1 of article 4 of DTA between India and UAE if he is liable to tax under Income-tax Act on income accrued or received in India - Mohsinally Ali mohammed Rafik v. CIT [1995] 79 Taxman 75 (AAR - New Delhi). n Under tax treaty between India and UAE income received/receivable in India by way of dividend is liable to tax in India at 15 per cent Mohsinally Ali mohammed Rafik v. CIT [1995] 79 Taxman 75 (AAR - New Delhi). n In terms of tax treaty between India and UAE, income received/receivable in India by way of interest on debentures/bonds/balance in capital account in partnership firm, is liable to tax in India at 12.5 per cent Mohsinally Ali mohammed Rafik v. CIT [1995] 79 Taxman 75 (AAR - New Delhi). n Though according to strict interpretation of article 4 of DTA only persons who are actually subjected to tax in UAE can be treated as resident of UAE to qualify for lower rate of tax in India, a liberal interpretation according to which persons who could be made liable to tax in UAE though not actually subjected to tax in UAE can be regarded as residents of UAE so as to be eligible for benefit of lower rate of tax in India, should be adoptedMohsinally Alimohammed Rafik v. CIT [1995] 79 Taxman 75 (AAR - New Delhi). n Where assessee was non-resident Indian national living and working in Dubai for past seventeen years with short visits to India and he had residential house property in India as well as in Dubai, though applicant could be regarded as resident of both India and UAE, in terms of article 4(2)(a), he was to be regarded as resident of Dubai, inasmuch as his centre of vital interests or his personal and economic ties were closer to Dubai than to IndiaMohsinally Alimohammed Rafik v. CIT [1995] 79 Taxman 75 (AAR - New Delhi). n DTA between India and UAE came into force on 29-9-1993 and it followed that all income arising to the applicant on or after 1-4-1994 would be governed by the agreement, and therefore, the dates of acquisition of the assets which yielded the income, was irrelvant for purposes of applying agreementMohsinally Alimohammed Rafik v. CIT [1995] 79 Taxman 75 (AAR - New Delhi). n See also Dr. Rajni Kant R. Bhatt v. CIT [1996] 89 Taxman 82 (AAR - New Delhi). Applicable rates of taxes under the Double Taxation Avoidance Agreement betwen India and the United Arab Emirates 1. It has been represented by some Non-Resident Indians in the United Arab Emirates (UAE) that the banks and the U.T.I. have been deducting tax at source on interest and dividend incomes at rates higher than those provided in the Double Taxation Avoidance Agreement between India and the United Arab Emirates. This has forced the Non-Resident Indians to seek remedy by way of refunds. It also appears that in each of such cases where refund was due and where decision on the applicability of the DTAA was involved, they had been advised to file a petition before the Authority for Advance Rulings. 2. The Board in its Circular No. 728, dated 30th October, 1995 (see Annex) have already clarified that in case of a remittance to a country with which a Double Taxation Avoidance Agreement is in force, tax should be deducted at the rates provided in the Finance Act of the relevant year or at the rates provided in the DTAA, whichever is more beneficial to the assessee. 3. Once again it is clarified that in respect of payments to be made to the Non-Resident Indians at the UAE, tax at source must be deducted at the following rates : (i) Dividends : (a) 5% of the gross amount of the dividends if the beneficial owner is a company which owns at least 10% of the shares of the company paying the dividends. (b) 15% of the gross amount of the dividends in all other cases. (ii) Interest : (a) 5% of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution. (b) 12% of the gross amount of the interest in all other cases. (iii) Royalties : 10% of the gross amount. 4. It is essential that the above rates which are enshrined in the DTAA between India and the UAE are strictly adhered to so as to avoid unnecessary harassment of the taxpayers. Circular : No. 734, dated 24-1-1996. Annexure 1. It has been represented to the Board that when making remittances of the nature of royalties and technical fees, tax is being deducted at source at the rates specified in the Finance Act of the relevant year, without taking into account the special rates for taxation of such income provided for under the Double Taxation Avoidance Agreement with the country concerned. 2. The expression rates in force has been defined in section 2(37A) of the Income-tax Act. Under sub-clause (iii) of section 2(37A), for the purposes of deduction of tax under section 195, the expression is to mean the rate or rates of income-tax specified in this behalf in the Finance Act in the relevant year or the rates of tax specified in the Double Taxation Avoidance Agreement entered into by the Central Government whichever is applicable by virtue of the provisions of section 90 of the Income-tax Act, 1961. 3. It is hereby clarified that in view of the provisions of sub-section (2) of section 90 of the Act, in the case of a remittance to a country with which a Double Taxation Avoidance Agreement is in force, the tax should be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA, whichever is more beneficial to the assessee. Circular : No. 728, dated 30-10-1995. 1 [ NOTIFICATION NO. 29/2013 [F.NO. 503/5/2004-FTD-II], DATED 12-4-2013 Whereas the annexed Second Protocol amending the Agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (hereinafter referred to as Protocol ) signed on the 16 th day of April, 2012 shall enter into force on the 12 th day of March, 2013, being the date of the later of the notifications after completion of the procedures as required by the laws of the respective countries for the entry into force of the Protocol, in accordance with Article 2 of the said Protocol. Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) , the Central Government hereby directs that all the provisions of the Protocol annexed hereto shall be given effect to in the Union of India with effect from the 12 th day of March, 2013. SECOND PROTOCOL AMENDING THE AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE GOVERNMENT OF THE UNITED ARAB EMIRATES FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL The Government of the Republic of India and the Government of the United Arab Emirates Desiring to amend the Agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital signed at New Delhi on the 29th April, 1992 as amended by the Protocol signed on 26th March, 2007 between the Government of the Republic of India and the Government of United Arab Emirates (in this Protocol referred to as the Agreement ), ARTICLE 1 PERSONAL SCOPE The Agreement is amended by omitting Article 28 and substituting: ARTICLE 28 EXCHANGE OF INFORMATION 1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Agreement or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Agreement. 2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. 3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation: (a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public). 4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information. 5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person. ARTICLE 2 ENTRY INTO FORCE The Contracting States shall notify each other in writing through diplomatic channel of the completion of their domestic requirements for the entry into force of this Protocol. The Protocol, which shall form an integral part of the Agreement, shall enter into force on the date of the last notification, and thereupon shall have effect from the date of entry into force of this Protocol. IN WITNESS WHEREOF the undersigned, duly authorised, have signed this Protocol. DONE in duplicate at Abu Dhabi, United Arab Emirates this 16th day of April, 2012, in the Hindi, Arabic and English languages, all texts equally authentic, the English text to be the operative one in case of any doubt.] *********** NOTES:- 1. Inserted vide NOTIFICATION NO. 29/2013 [F.NO. 503/5/2004-FTD-II], DATED 12-4-2013 .