South Africans in the United Arab Emirates, who reside in South Africa, may soon have to pay foreign income tax. As part of a double taxation agreement with the United Arab Emirates, a provision of South African tax law provides for an exemption from the tax on income from working abroad, also known as the “Expat Tax”. This means that South African residents who work more than 183 days outside the country and who work for a continuous period of more than 60 days for a period of 12 months are not subject to South African tax. However, an amendment that will come into effect in March next year will limit this exemption to incomes up to 1 million rand (Dh252.950). “For example, between Austria and the United Arab Emirates, there is a provision that your VaE income is exempt from Austrian income tax,” says Azhari, an expert in international tax law. “The German Double Taxation Convention stipulates that any income tax you pay in the United Arab Emirates is deducted from German income tax, so you pay the full income tax in Germany.” Participation in an international tax framework offers significant guarantees and benefits for businesses and expatriates in the United Arab Emirates. Double taxation agreements assign tax duties and ensure that individuals and businesses are taxed only once. They clarify how certain types of income, such as dividends, property income and pensions, should be taxed and establish non-discrimination rules to avoid differences in treatment based on factors such as nationality or residence. “The agreements can also allow for an exemption from foreign taxation and certain obligations to comply with foreign taxes in other countries,” says Jochem Rossel, partner and international tax services provider at PwC Middle East. To implement the BEPS measures, the United Arab Emirates has signed a multilateral instrument that facilitates the modification of its existing treaties. “It allows the UAE to change all tax treaties through an agreement,” says Khan of the law firm Al Tamimi. The UAE has 123 double taxation agreements in force or pending, expatriates and businesses benefit from 21 outstanding double taxation agreements, 12 have been signed but have not yet been ratified and nine are being negotiated.
The VaE signed an agreement with Saudi Arabia last May, the first in the GCC. Among the countries under negotiation are Australia, Peru and Nepal. “We have covered almost 120 countries and are still expanding, we are signing other agreements with South American countries and a few other African countries, as well as cooperation with the Nordic countries,” Younis Al Khoori, undersecretary of state at the UAE Ministry of Finance, told The National. For a country with very low taxes, the United Arab Emirates has a vast network of double taxation conventions. With agreements in 90 countries – and 33 in progress – the UAE has more double taxation conventions than countries such as Ireland, Luxembourg and Singapore. In May 2018, it signed the OECD`s Inclusion Framework for Erosion and Profit Transfer (BEPS). These are the tax evasion strategies of multinationals that “relocate” profits from higher tax jurisdictions to areas with lower taxes, which “undermines” the tax base of higher tax zones.