Canada-United Arab Emirates tax treaty: key aspects for real estate investors
For Canadians investing in real estate in the United Arab Emirates, it is essential to understand the tax implications of their operations. The tax treaty between Canada and the United Arab Emirates is designed to avoid double taxation and ensure a clear tax framework. Here are the main points to bear in mind. Find the official treaty below, followed by the analysis.
Objective of the agreement: avoid double taxation
The tax treaty prevents Canadian residents from being taxed in both Canada and the United Arab Emirates on the same income. This provides protection against double taxation, essential to optimizing your investments abroad.
Types of taxes covered
The agreement applies to the following taxes:
- In Canada: personal and corporate income tax, as well as capital gains tax.
- United Arab Emirates: corporate income tax and similar taxes.
Tax residence: how it is determined
To determine where an investor is a tax resident, the treaty takes into account several factors, such as the place of principal residence and the center of economic interests. If this is not sufficient, nationality can be used as an additional criterion.
Real estate income: taxation rules
Income from real estate located in the Emirates is taxable in that country, even if the owner is resident in Canada for tax purposes. Real estate income includes :
- Rental income.
- Capital gains on the sale of real estate.
Capital gains
Gains from the sale of real estate located in the Emirates are subject to local taxation. However, thanks to the treaty, these gains are not taxed a second time in Canada.
Taxation of dividends, interest and royalties
Dividends paid by an Emirates company to a Canadian resident may be subject to tax in the Emirates. However, Canada grants a tax credit to avoid double taxation of such income.
Interest and royalties, although potentially taxed in the Emirates, also benefit from a tax credit in Canada, reducing the total tax due.
How the agreement eliminates double taxation
The agreement provides for two mechanisms to avoid double taxation:
- Exemption: certain income earned in the Emirates may be tax-exempt in Canada.
- Tax credit: taxes paid in the Emirates can be used to reduce taxes owed in Canada.
Tax non-discrimination
Canadian residents must be treated in the same way as residents of the Emirates in tax matters. They cannot be subject to higher taxes or charges than those applied to local residents.
Conclusion
The tax treaty between Canada and the United Arab Emirates provides a valuable framework for Canadians wishing to invest in real estate in the Emirates. It clarifies tax obligations, avoids double taxation and protects investors' income. By understanding and applying the benefits of the treaty, Canadian investors can better manage their tax obligations while maximizing their returns.
