Toni Advani (Accountant) (25 Points)
31 October 2012A resident of India incorporates a company in a Free Trade Zone of UAE. The company generates international business by operating from UAE. The profits generated by that company are transferred to the person's bank account in India.
Will these profits be taxable in India, considering the India UAE treaty?
CA Ram
(CA)
(310 Points)
Replied 31 October 2012
this income is taxable in uae. It is exempt then DTAA will arrive. so. if india has agreement with uae on DTAA. so it is exempt income.
Saket Sinha
(Student)
(129 Points)
Replied 31 October 2012
Since the income is generated by using permanent establishment in UAE. So it is taxable in UAE.It is not exempted in the hands of resident (Read Article25)
Saket Sinha
(Student)
(129 Points)
Replied 31 October 2012
Provided further that, . The laws in force in either of the Contracting States shall continue to govern the taxation of income and capital in the respective Contracting States except where express provisions to the contrary are made in this Agreement.
2. Where a resident of India derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in U.A.E., India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in U.A.E. whether directly or by deduction; and as a deduction from the tax on the capital of that resident an amount equal to the capital tax paid in U.A.E. Such deduction in either case shall not, however, exceed that part of the income-tax or capital tax (as computed before the deduction is given) which is attributable, as the case may be, to the income or the capital which may be taxed in U.A.E. Further, when such resident is a company by which surtax is payable in India, the deduction in respect of income-tax paid in U.A.E. shall be allowed in the first instance from income-tax payable by the company in India and as to the balance, if any, from the surtax payable by it in India.
3. Subject to the laws of the U.A.E. where a resident of the U.A.E. derives income which in accordance with the provisions of this Agreement may be taxed in India, the U.A.E. shall allow as a deduction from the tax on income of that person an amount equal to the tax on income paid in India. Such deduction shall not, however, exceed that part of income-tax as computed before the deduction is given, which is attributable to the income which may be taxed in the U.A.E.
4. For the purpose of paragraph (3), the term tax paid in India shall be deemed to include the amount of Indian tax which would have been paid if the Indian tax had not been exempted or reduced in accordance with the special incentive measures under the provisions of the Income-tax Act, 1961, which are designed to promote economic development in India, effective on the date of signature of this Agreement, or which may be introduced in the future in modification of, or in addition to, the existing provisions for promoting economic development in India, and such other incentive measures which may be agreed upon from time to time by the Contracting States.
5. Where, in accordance with any provision of the Agreement, income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may, nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.
Therefore, income is first included and deduction shall be allowed as per the paragraph2.
CA Mangesh Chitale
(B. Com. A.C.A. DISA (ICAI) DIRM (ICAI))
(245 Points)
Replied 31 October 2012
Income is received in bank account of Indian person is in which form? Is it 'Dividend' or 'Advance or loan' or 'Salary' ? Is he director in UAE company?
Toni Advani
(Accountant)
(25 Points)
Replied 02 November 2012
If the income in the Indian bank account is towards Directors' fees, then I suppose there will be no tax applicable in India
Article 16: Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the Board of Directors of a Company which is a resident of the other Contracting State may be taxed in that other State.
Thus, the income is taxable in UAE, but by virtue of the company being in a Free Trade Zone, the tax rate applicable will be 0%. However, the amount will not be taxable in India as per quoted article.
Please let me know if my understanding is correct.
Saket Sinha
(Student)
(129 Points)
Replied 02 November 2012
Yes, if a resident is receiving anount as a directors fees then that fees is taxable in that contracting state.Therefore income is taxable in UAE and not in india. Provisions of income tax or DTAA whichever is beneficial shall be applied. Therefore income is not taxable in India.
CAclubindia
