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Mobility: tax alert
May 2016
United Kingdom/United Arab Emirates
Executive summary On 12 April 2016 the United Kingdom and the UAE signed a double tax agreement, the details of which have now been published. From a mobility perspective the key point of interest is that the treaty includes fairly standard paragraphs on individual tax residence and employment income. If ratified this should prevent significantly more Dubai residents who come to the UK on business trips or short term assignments from being subject to tax in the UK on their employment income. Companies operating business traveler compliance programmes will need to update their policies and protocols for what is a significant business travel corridor. Other points of interest include the assignment of pension taxing rights to the country of residence and that non UK/EU nationals cannot claim a UK personal allowance if not resident in the UK. The agreement will come into force from 1 January next following the date when both countries have completed their Parliamentary procedures and exchanged diplomatic notes. Background The United Arab Emirates (UAE) is one of two countries with significant economies in international terms not to have a Double Taxation Agreement with the United Kingdom (UK). UAE has been building out its double tax treaty network and on 12 April 2016 it signed a double taxation agreement with the UK. As the treaty is subject to completion of the parliamentary procedures of both countries and the exchange of diplomatic notes, no date has yet been confirmed as to when the treaty
Details released of new UK/UAE double tax treaty
will come into force. However, Article 26 states that it will enter into force from 1 January next following the date both countries complete their ratification. Key aspects of the treaty Specific points of interest include: Residence (Article 4) For the UAE, an individual is deemed resident there if they are domiciled in the UAE, have their habitual abode there or their center of vital interests. Compared to other treaties UAE has signed this definition is quite widely drawn. For dual residents the article follows the normal OECD standard treaty tie-break test. Where an individual is resident in both countries under domestic legislation, the country of residence for treaty purposes is determined by examining where the individual has a permanent home, then if the individual has a permanent home in both states where the individual’s center of vital interest lies, before examining the individual’s habitual abode and finally nationality. If none of these factors determine residence it is down to the tax authorities to reach agreement between themselves. Income from employment (Article 14) As is normal for such treaties, the employment income article contains provisions to allow short term business visitors to claim exemption from tax in the other Party provided they meet conditions that are now quite standard in treaties between major trading nations. This includes spending less than 183 days in the host country in any 12 month period, being paid by or on behalf of a non-resident employer and not having the costs of the employment borne by a permanent establishment of the employer in the host country.
Mobility: tax alert 2
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© 2016 EYGM Limited. All Rights Reserved. EYG no. DN0974
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
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(NB: Article 5 on Permanent Establishment confirms that a subsidiary or parent company of the employer in the host location does not represent a permanent establishment). Directors (Article 15) Directors’ fees paid to a resident of one country by a company resident in the other country may be taxed in that other country. For Dubai based directors of UK companies, this will continue the position that, the UK will tax directors’ fees by reference to the number of days spent in the UK performing Directors’ duties. Pensions (Article 17) The right to tax a pension lies with the country of residence. No mention is made of lump sums from pension funds. Non-discrimination (Article 22) This article does not grant a personal allowance to non-UK nationals who are not resident in the UK. Personal allowances would only be due if they were due under the UK’s legislation, for example for UK and EU nationals. Next steps This treaty will have a significant impact on the taxation of employees moving between the UK and UAE and employers and their employees should take active steps to prepare for its coming into force when the date for this is known. Key areas of impact are: ► Business travelers to the UK from Dubai will have greater scope for avoiding UK
income tax on income relating to their UK workdays, although restrictions on recharges between entities, tax residence, length of period in the UK and whether or not there is a branch structure will continue to apply
► Individuals assigned to Dubai from the UK will be able to claim to be non-UK resident for treaty purposes under the double tax treaty if they fail to break UK tax residence under the Statutory Residence test when they have an habitual abode or center or vital interests in Dubai
► Dubai residents receiving pensions from UK pension plans will be able to claim exemption from UK taxation under the pensions article.
Ernst & Young will issue a further Alert once we know when the new treaty will come into force.
United Kingdom Steve Wade Tel: +44 (0)20 7951 6185 Email: [email protected] UAE Zaheed Alibhai Tel: +971 4 701 0866 Email: [email protected] Financial Services Nick Yassukovich Tel: +44 (0)20 7951 9517 Email: [email protected] Business Traveller Risk Management Nick Bacon Tel: +44 (0)20 7951 1413 Email: [email protected]
