The tax treaty for the avoidance of double taxation between the French government and the government of the United Arab Emirates was signed on July 19, 1989 and was amended in 1993 to now also include a multilateral convention to prevent base erosion and profit shifting since the entry into force 1er January 2019 (the " Convention ").
The objectives of this Convention are multiple.
First, both countries wish to promote their economic relations and cooperation in tax matters.
Furthermore, they wish to eliminate double taxation with respect to certain taxes expressly covered by the Convention[1].
However, the Convention has provided a safeguard: the scheme or strategies put in place by taxpayers, whether individuals or legal entities, must not have the sole and exclusive aim of obtaining tax relief provided for by the Convention.
The French and Emirati taxes covered by the Convention are limited to[2] :
– income tax including in the case of real estate sales;
– tax on companies registered in France or the UAE;
– the solidarity tax on real estate assets; and
– inheritance tax.
The concept of tax residence: what are the criteria?
The essential concept within this Convention, as with any tax convention, is that of tax residence.
France operates on a bundle of indices concerning the tax residence of a French citizen[3].
Therefore, you will be domiciled for tax purposes in France if:
– your family home remains in France (spouses/children); and/or
– if a person exercises 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, headquarters of a company, parent company), i.e. it is in France that you earn the majority of your income (in comparison with the Emirates).
What about dual residency?
However, if you reside in the Emirates for more than 183 days with a residence visa, you are also a tax resident of the Emirates, which is when the Convention becomes very important in determining which country you are tax dependent on.
The convention provides that in the event of dual tax residence, it will be necessary to refer[4] :
– to the taxpayer’s permanent home;
– if the latter has two usual homes, it will then be necessary to position oneself on his vital centers of interest (most pronounced personal and economic ties);
– if the latter does not have a residence and does not habitually reside in either country, the tax residence will be that of his 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 originating from the Emirates will be taxable in France.
So this article will help you shed light on the Tax Convention if you are a French citizen with tax residence in the Emirates.
French real estate income[5]
The Convention provides that real estate income is taxed respectively in the country where the property is located.
Thus, even if you are a tax resident in the Emirates due to the above criteria, income from real estate located in France will be taxable in France. As such, even if you own shares in real estate companies and not real estate, as long as the ownership of these shares gives you the enjoyment of the property, you will still be taxed in France.
On the contrary, If the shares and stocks 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 this income will not be taxable in France but in the Emirates and will therefore be tax-exempt by definition.
There is, however, an exception that will be found for all types of income covered by the Convention – if these dividends are linked to a professional activity carried out in France (industrial, commercial or even 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 you are then exempt from it, just like dividends.
As such, if the income from French receivables is linked to a professional activity in France, then the latter will be taxable in France.
Royalties[8]
All remuneration arising from an intellectual and/or industrial property right (ex : copyright, patent, trademark, manufacturing process, computer coding etc.) will be paid in the beneficiary's country of residence.
Therefore, 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 are 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% of 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 linked to one of your professional activities in France.
However, regarding 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 exercise an independent 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 a permanent establishment in the Emirates, then this income will be exempt from tax in France.
Employee income [11]
If you are a tax resident in the Emirates and you receive income from salaried employment in this country, then you are exempt from French taxes.
There is one exception: if you are employed as an employee of an Emirati company and you physically work in France, then France reserves the right to tax you on your income from Emirati sources unless the following three conditions are cumulatively met:
– you reside in France for less than 183 days during the tax year concerned; and
– your employer is not a French resident; and
– the cost of remuneration is not borne in France (through a permanent establishment for example)
French private sector pension [12]
With regard to 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, which is the case, for example, of voluntary insurance against old age risk.
Wealth tax [13]
If you are a tax resident in the Emirates but you own real estate not linked to a professional activity in France, the amount of which makes you liable for wealth tax in France, you will then have to pay it if and only if the value of your French real estate is greater than:
– 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 (to 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 real estate wealth tax.
Succession[15]
Regarding the inheritance of real estate, regardless of your tax residence, the latter will be taxable in the State where it is located.
Concerning movable property linked to a professional activity within a State, they will be linked to the inheritance law of the latter.
Finally, concerning 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]
Both States have undertaken to exchange information not limited to taxes covered by the Convention.
[1]It must then be understood, a contrario, that taxes not covered by the Convention must be paid jointly in France and in the Emirates.
[2]Article 2 of the Convention
[3]Article 4 A and 4B of the 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, September 12, 2012, § 20. – Instr. April 8, 2002: BOI 14 B-2-02: Dr. tax. 2002, No. 17, instr. 18822
[15] Article 17 of the Convention
[16] Article 21 A of the Convention
