Focus on the tax treaty between France and the Emirates – its impacts for individual UAE residents
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The tax treaty designed to avoid double taxation between the French government and that of the United Arab Emirates was signed on July 19, 1989, and was subsequently amended in 1993 to now also include a multilateral convention to prevent base erosion and profit shifting since its entry into force on January 1, 2019 (the "Treaty").
The objectives of this Convention are twofold.
Firstly, both countries wish to promote their economic relations and cooperation in tax matters.
Furthermore, they wish to eliminate double taxation in respect of certain taxes expressly covered by the Convention[1].
However, the Convention has provided a safeguard: the arrangements or strategies put in place by taxpayers, whether individuals or legal entities, must not have the sole and exclusive purpose of obtaining tax relief provided for under the Convention.
The French and Emirati taxes covered by the Convention are limitively[2]:
income tax, including in the event of a real estate sale;
corporation tax on companies registered in France or the UAE;
the solidarity tax on real estate wealth; and
inheritance tax.
The concept of tax residency: what are the criteria?
The essential concept within this Convention, as in any tax treaty, is that of tax residence.
France operates on a bundle of indicators regarding the tax residence of a French citizen[3].
Thus, you will be tax-domiciled in France if:
your family home remains in France (spouse/ children); and/or
if a person carries out a non-ancillary professional activity in France, whether as an employee or not; and/or
if you have the center of your economic interests in France (investment of any kind, head office of a company, parent company), i.e., it is in France that you derive the major part of your income (in comparison with the Emirates).
And in the case of joint custody?
However, if you reside more than 183 days in the Emirates with a residency visa, you are also a tax resident of the Emirates. It is then that the Treaty assumes its full importance in order to determine which country you are dependent on for tax purposes.
The treaty provides that in the event of dual tax residence, reference must be made to[4] :
the permanent home of the taxpayer ;
if the latter has two habitual homes, it will then be necessary to focus on their centers of vital interests (most pronounced personal and economic ties) ;
if the latter does not have a residence and does not habitually stay in either of the two countries, the tax residence will be that of their nationality.
As a reminder, the concept of tax residence is very important because if the French authorities consider that you are a tax resident in France, then all income and profits coming from the Emirates will be taxable in France.
Thus, this article will help you shed light on the Tax Treaty if you are a French citizen with your tax residence in the Emirates.
French real estate income [5]
The Convention stipulates that real estate income is taxed respectively in the country where the property is located.
Therefore, even if you are a tax resident of the UAE based on the aforementioned criteria, income from real estate located in France will be taxable in France. Consequently, even if you own shares in real estate companies and not the property itself, as long as your ownership of these shares grants you the right to use the property, you will be taxed in France.
Conversely, if the shares and stock of a real estate company do not give you the right to dispose of the property, this income will not be considered as real estate income and will be taxed as income from securities.
Dividends [6]
If you have invested in shares/financial securities of French companies and you receive dividends then these revenues will not be taxable in France but in the Emirates and will therefore by definition be exempt from taxes.
There is, however, one exception which applies to all types of income covered by the Convention – if these dividends are related to a professional activity carried out in France (industrial, commercial or independent profession) then in this case, the taxes on these dividends will be payable in France.
Income from movable capital of any kind [7]
If you are a tax resident in the Emirates and you receive interest from French debts, you are taxed on this income in the Emirates and are then exempt from it, just like dividends.
Therefore, if income from French receivables is linked to a professional activity in France, then the latter will be taxable in France.
Royalties [8]
All remuneration from an intellectual and/or industrial property right ( e.g. , copyright, patent, trademark, manufacturing process, computer coding, etc.) will be paid in the beneficiary's country of residence.
Thus, if you are a tax resident in the Emirates and you receive remuneration from royalties, you will not pay any tax in France with one exception: if these royalties come from a professional activity carried out in France through a permanent establishment.
Capital gains [9]
If you are a resident of the Emirates but you sell real estate not related to a professional activity or if you sell shares whose assets consist of more than 80% real estate in France, you will then be liable for French capital gains tax.
On the other hand, if you sell movable property including securities, these gains will only be taxable in the UAE unless they are related to one of your professional activities in France.
However, with regard to movable property, there is a safeguard: if the shares transferred represent at least 25% of the capital of a French company, then the capital gains tax on these shares will be payable in France.
Independent professions [10]
If you are a tax resident in the Emirates but continue to carry out a self-employed profession in France, you will continue to pay taxes on the income from this activity.
On the other hand, if you carry out your independent activity through a fixed base or permanent establishment in the Emirates then these revenues will be exempt from taxes in France.
Employee income [11]
If you are a tax resident in the Emirates and you receive income from salaried employment in that country then you are exempt from French taxes.
There is, however, one exception: if you are employed by an Emirati company and physically work in France, then France reserves the right to tax you on your Emirati-sourced income unless the following three conditions are cumulatively met:
you reside in France for less than 183 days during the relevant tax year; and
Your employer is not a French resident; and
The cost of salaries is not borne in France (through a permanent establishment, for example).
French private sector pension [12]
As regards pensions and remuneration paid for salaried work prior to the change of tax residence in France (excluding work within the civil service), they are in principle not taxable in France.
However, pensions paid under French social security legislation are taxable in France, as is the case, for example, with voluntary old-age insurance.
Wealth tax [13]
If you are a tax resident in the UAE but own real estate in France that is not related to a professional activity and whose value makes you liable for French wealth tax, you will only have to pay it if the value of your French properties exceeds:
the value of French shares listed on the stock exchange or of an approved investment company (covering all credit institutions including French banks not listed on the stock exchange) [14] ; and
the value of French receivables (against the State or companies) that you hold.
These shares and receivables must also be held for more than six months to allow such an exemption from the real estate wealth tax.
Succession [15]
Regarding the inheritance of real estate, regardless of your tax residence, it will be taxable in the state where it is located.
Regarding movable property related to a professional activity within a State, it will be subject to the inheritance law of that State.
Finally, regarding other movable property and subject to contrary testamentary provisions, the property will be taxed in the State of which the deceased was a resident at the time of death.
Exchange of information [16]
The two States have committed to exchanging information that is not limited to taxes covered by the Convention.
[1]It must therefore be understood, conversely, that taxes not covered by the Convention must be paid jointly in France and the United Arab Emirates.
[2]Article 2 of the Convention
[3]Article 4 A and 4B of the French General Tax Code
[4]Article 4 of the Convention
[5]Article 5 of the Convention
[6]Article 8 of the Convention
[7] Article 9 of the Convention
[8] Article 10 of the Convention
[9] Article 11 of the Convention
[10] Article 12 of the Convention
[11] Article 13 of the Convention
[12] Article 14 of the Convention
[13] Article 16 A of the Convention
[14] BOI-INT-CVB-ARE, Sep 12, 2012, § 20. – Instr. Apr 8, 2002: BOI 14 B-2-02: Dr. fisc. 2002, no. 17, instr. 18822
[15] Article 17 of the Convention
[16] Article 21 A of the Convention
