CIRCULAR NO.734, DATED 24TH JAN., 1996.

Applicable rates of taxes under the Double Taxation Avoidance Agreement between India and the United Arab Emirates

DOUBLE TAXATION RELIEF

SECTION 90

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)  12.5 % 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.

Annex

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.  

ARTICLE 4 - Resident - 1. For the purposes of this Agreement the term ‘resident of a Contracting State ’ means:

  (a)  in the case of India: any person who, under the laws of India, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. This term, however, does not include any person who is liable to tax in India in respect only of income from sources in India ; and

  (b)  in the case of the United Arab Emirates: an individual who is present in the UAE for a period or periods totaling in the aggregate at least 183 days in the calendar year concerned, and a company which is incorporated in the UAE and which is managed and controlled wholly in UAE.

2. For the purposes of paragraph 1:

  (a)  The Republic of India , its political sub-divisions or local authority thereof shall be deemed to be resident of the Republic of India ;

  (b)  The United Arab Emirates and its political sub-divisions or local Governments shall be deemed to be resident of the United Arab Emirates ;

  (c)  Government institutions shall be deemed, according to affiliation, to be resident of the Republic of India or the United Arab Emirates . Any institution shall be deemed to be a Government institution which has been created by the Government of one of the Contracting States or of its political sub-divisions or local authority/Governments, which are wholly owned and controlled directly or indirectly by the Government of the Contracting State or political sub-division or local authority/Governments which are recognized as such by mutual agreement of the competent authorities of the Contracting States.

  (d)  For the purposes of this article, Abu Dhabi Investment Authority is recognized as a resident of the United Arab Emirates .

3. Where by reason of the provisions of paragraph (1), an indi­vidual is a resident of both Contracting State , then his status shall be determined as follows :

  (a) he shall be deemed to be resident of the State in which he has a permanent home available to him ; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic  relations are closer (centre of vital interests) ;

  (b) if the State in which he has his centre of vital interests cannot be  determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

  (c) if he has an habitual abode in both States or in either of them, he shall be deemed to be a resident of the State of which he is a national ;

  (d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

4. Where by reason of the provisions of paragraph (1), a person other than an individual is  a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated.

ANNEXURE - 4.