The tax convention to avoid double taxation between France and the United Arab Emirates was signed on July 19, 1989 and was amended in 1993 to include a multilateral convention (MLI) aimed at preventing the erosion of the tax base and the transfer of profits since its entry into force on January 1, 2019.
This Convention pursues various objectives. First of all, it aims to promote economic relations and fiscal cooperation between the two countries. In addition, it seeks to eliminate double taxation on certain taxes specifically covered by the Convention.
However, the Convention also included a provision to prevent the use of schemes or strategies by taxpayers, whether natural or legal persons, for the sole purpose of obtaining tax reliefs provided for by the Convention.
The most common question for an expatriate is whether they will still be considered a French tax resident. For France, several criteria are used to determine the tax residence of a French citizen.
Thus, a person will be considered to be tax domiciled in France if:
· His family home is in France (spouses/children).
· A person carries out a substantial professional activity in France, whether as an employee or not.
· The center of its economic interests is in France, which means that the majority of its income comes from France compared to the United Arab Emirates.
In the event of dual residence, the Convention establishes criteria for determining tax residence:
· The taxpayer's permanent residence.
· If the taxpayer has two usual residential homes, the centers of vital interest (strongest personal and economic ties).
· If the taxpayer has neither residence nor habitual stay in either country, the tax residence will be that of his nationality.
Real estate income
The Convention takes up the rule of principle and stipulates that real estate income is taxed in the country where the real estate is located. So, even if you are a tax resident in the Emirates under the above criteria, income from real estate located in France will be subject to tax in France. This also applies if you own shares in real estate companies.
Dividends
If you invest in shares or financial securities of French companies and you receive dividends, this income will not be taxed in France, but in the Emirates, and will therefore be exempt from tax. An exception applies if these dividends are linked to a professional activity carried out in France, in which case taxes will be due in France.
Income from movable capital of all kinds
If you are a tax resident in the Emirates and you receive interest on French debts, this income will be taxed in the Emirates and exempt in France, unless this income is linked to a professional activity in France, in which case it will be taxable in France.
Royalties
All remuneration arising from intellectual and/or industrial property rights will be taxed in the country of residence of the beneficiary, unless these royalties arise from a professional activity carried out in France through a permanent establishment.
Capital gains
If you are a resident of the Emirates and you sell real estate not linked to a professional activity, or if you sell shares in a company predominantly in real estate , you will be liable for capital gains taxes in France. However, if you sell movable property, including securities, these gains will be taxable only in the UAE. For movable property, an exception applies: if the shares transferred represent at least 25% of the capital of a French company, tax on the capital gain of these shares will be payable in France. This is the rule of meaningful participation.
Independent professions
If you are a tax resident in the Emirates but you exercise an independent profession in France, you will continue to pay taxes on the income from this activity, unless you exercise your independent activity through a fixed base or a permanent establishment in the Emirates, to which In this case, this income will be exempt from tax in France.
Employee income
If you are a tax resident in the Emirates and you receive income from salaried employment in this country, you are exempt from taxes in France , unless you are considered a French tax resident under the set of indices indicated above .
French private sector pension
With regard to pensions and remuneration paid for salaried work prior to the change of tax residence in France, they are generally not taxable in France. However, pensions paid under French social security legislation are taxable in France.
Real estate wealth tax
If you are a tax resident in the Emirates and you own real estate in France, you will have to pay IFI in France if the value of this property exceeds certain limits. However, there are exemptions if you hold French shares listed on a stock exchange or French debt, provided they are held for more than six months.
Succession
Concerning the inheritance of real estate, it will be taxable in the State where it is located, regardless of your tax residence or that of the deceased . For movable assets linked to a professional activity in a State, they will be subject to the inheritance rules of that State. As for other personal property, it will be taxed in the state of which the deceased was a resident at the time of death.
