Key Considerations of the Brazil-UAE Double Tax Treaty

The Brazil-UAE Double Tax Treaty (DTT) came into force on 1 January 2022, giving companies and individuals doing business across both countries a clearer framework for avoiding double taxation. Since UAE Corporate Tax took effect under Federal Decree-Law No. 47 of 2022, the treaty’s residency and permanent establishment provisions carry more direct weight than when the treaty was first signed, they now shape UAE tax exposure as well as Brazilian.

This guide covers the treaty’s key provisions, how it differs from other UAE treaties, how it now interacts with UAE Corporate Tax, and how a business actually claims treaty benefits.

Incorporation of the OECD Model

The treaty draws heavily from the OECD Model Tax Convention of 2017, incorporating several Base Erosion and Profit Shifting (BEPS) recommendations. It’s worth noting this treaty does not fall under the Multilateral Instrument (MLI), despite the UAE having signed the MLI separately.

Exchange of Information

The treaty establishes a framework for information exchange between Brazil and the UAE, strengthening transparency and cooperation in combating tax evasion and avoidance.

Residence Criteria Under the Treaty

To qualify as a UAE resident under the treaty, a company must meet specific conditions: establishment within the UAE, a place of effective management in the UAE, and capital beneficially owned and controlled, directly or indirectly, by the UAE government, government institutions, political subdivisions, local governments, or UAE nationals domiciled in the UAE.

Also check: International Tax Advisory

Dual Residency: A Notable Departure From the OECD Model

Where a company is considered resident in both the UAE and Brazil, this treaty takes an unusual approach: rather than resolving the conflict, the company is treated as resident in neither country and loses eligibility for treaty benefits entirely. This departs from the standard OECD Model Tax Convention and MLI approach, which typically resolves dual residency based on the location of effective management or a determination by the competent authorities. This makes getting the residency analysis right upfront considerably more consequential under this treaty than under most others the UAE has signed.

Permanent Establishment (PE) Provisions

The treaty’s PE definitions align with BEPS Action 7, addressing artificial avoidance of PE status through commissionaire arrangements, expanded agency PE scope, clarified independent agent rules, closely related enterprises, and specific activity exemptions. These provisions are designed to prevent structures built specifically to avoid creating a taxable presence in either country.

How This Treaty Now Interacts With UAE Corporate Tax

Before UAE Corporate Tax existed, this treaty’s PE and residency provisions mattered mainly for determining Brazilian tax exposure. That’s no longer the full picture. Since Corporate Tax took effect, whether a Brazilian company’s UAE activity creates a PE under this treaty now also determines whether that activity falls within UAE Corporate Tax’s scope, and the treaty’s unusual dual-residency rule means a company that fails the residency test in both jurisdictions doesn’t just lose treaty benefits, it faces the full domestic tax position in each country independently, with no treaty relief bridging the two. A UAE company earning income from Brazil, or a Brazilian company with UAE activity, now needs to assess both sides of this treaty with UAE Corporate Tax specifically in mind, not just the Brazilian tax angle the treaty was originally most relevant for.

Must check: Corporate Tax Services in UAE

Taxation of Capital Gains

This treaty takes a distinct approach to capital gains taxation compared with several of the UAE’s more recent treaties, businesses should review the specific capital gains article rather than assuming standard treatment carried over from another UAE treaty applies here.

Benefits Entitlement: The Principal Purpose Test (Article 29)

Article 29 addresses treaty shopping through the Principal Purpose Test (PPT), aligned with the minimum BEPS standard under the MLI. It also requires a base-erosion test: demonstrating that no more than 50% of gross income is used, directly or indirectly, to settle obligations such as interest and royalties owed to individuals or entities not themselves entitled to treaty benefits. Importantly, being entitled to treaty benefits doesn’t prevent either country from applying its own domestic anti-avoidance laws on top.

Worked Example: Applying the Residency and PE Tests

A UAE-incorporated holding company has its board meetings and effective management genuinely conducted in the UAE, with capital held by UAE resident individuals. It clearly meets the treaty’s UAE residency conditions. If that same company also maintains a registered office in Brazil where local staff make independent day-to-day decisions without UAE oversight, it risks being treated as also resident in Brazil under Brazilian domestic rules. Under this treaty’s unusual dual-residency provision, that outcome doesn’t trigger the standard tie-breaker test other treaties would apply, it can result in the company losing treaty benefits entirely, exposed to the full domestic tax position in both countries rather than the relief the treaty would otherwise provide. This is exactly the scenario the treaty’s departure from the OECD Model makes more consequential than it would be under most other UAE treaties.

How to Claim Treaty Benefits: The Tax Residency Certificate

None of the treaty’s relief applies automatically. To claim benefits, a UAE-resident business or individual generally needs a Tax Residency Certificate (TRC) from the UAE Federal Tax Authority, confirming UAE tax residency for the relevant period. This certificate is what supports a reduced withholding position or exemption claim with Brazilian tax authorities. Given this treaty’s stricter dual-residency consequence, securing a clean TRC, and being able to demonstrate genuine effective management in the UAE if the residency position is ever challenged, matters more here than under treaties with a standard tie-breaker mechanism to fall back on.

Other Notable Provisions

The treaty also includes a Fees for Technical Services article, an independent personal services clause, the foreign tax credit method for avoiding double taxation, and a mutual agreement procedure fulfilling minimum BEPS standards.

Implications and Practical Considerations

Brazil has historically classified the UAE as a tax haven jurisdiction, leading to specific tax treatment, including withholding taxes, on transactions with UAE residents. The treaty’s signing may eventually lead to a change in that classification, which would affect how UAE-sourced income is taxed for Brazilian purposes, but until that change is formally confirmed, Brazilian tax authorities may continue applying their existing interpretation. For a UAE company to benefit from the treaty in the meantime, it must meet the specific residency criteria, satisfy the Principal Purpose Test, and pass the 50% base-erosion test, all three matter, and given the dual-residency rule’s severity under this particular treaty, getting the residency position right from the outset is worth prioritizing over other elements.

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How Farahat & Co. Can Help

Farahat & Co. supports UAE businesses with treaty benefit claims, Tax Residency Certificate applications, and Corporate Tax positioning for cross-border transactions with Brazil.

Contact Farahat & Co. today to discuss your international tax and treaty benefit requirements.