Double Tax Treaty UK & UAE | A Comprehensive Guide

The UAE-UK Double Taxation Convention, signed 12 April 2016 and in force from 25 December 2016, is a comprehensive agreement between the United Arab Emirates and the United Kingdom designed to prevent dual taxation on individuals and businesses engaged in cross-border activity. The treaty was further modified by the OECD’s Multilateral Instrument (MLI) from 1 January 2020.

This article explains the treaty’s specific withholding tax provisions, how UAE residents claim treaty benefits, capital gains treatment, and a worked example of applying the treaty to a real cross-border payment.

Withholding Tax Rates Under the Treaty

Unlike some double tax treaties that set a reduced withholding rate, the UAE-UK treaty generally eliminates withholding tax entirely on the main categories of cross-border income between the two countries:

• Dividends (Article 10). Generally not subject to withholding tax in the source state. An important exception applies to distributions from UK Real Estate Investment Trusts (REITs), which remain subject to UK withholding at the basic rate of income tax, currently 20%.
• Interest (Article 11). Interest arising in one country and beneficially owned by a resident of the other is generally taxed only in the recipient’s country of residence, effectively eliminating source-country withholding in most cases.
• Royalties (Article 12). Royalties, including payments for the use of copyrights, patents, and similar rights, are taxable only in the recipient’s country of residence, a 0% withholding outcome in the source state.

Both interest and royalty provisions include an anti-abuse limitation, where payments between related parties exceed what would have been agreed at arm’s length, the excess can be recharacterized and taxed under each country’s domestic tax law, consistent with OECD transfer pricing principles under Article 9 of the treaty.

Also check: International Tax Advisory

Capital Gains Treatment

The treaty addresses capital gains specifically. Profits from selling real estate located in one contracting state can be taxed by that state, regardless of the seller’s residence. Profits from selling other types of property are generally taxable only in the seller’s country of residence, meaning a UAE resident selling non-UK-real-estate assets is generally not exposed to UK capital gains tax under the treaty.

How UAE Residents Claim Treaty Benefits

To claim relief under the treaty, whether reduced or eliminated UK withholding on dividends, interest, or royalties, a UAE resident generally needs a Tax Residency Certificate (TRC) issued by the UAE Ministry of Finance through the EmaraTax platform. Without a valid TRC, the UK will typically apply its standard domestic withholding rate rather than the treaty rate, and any excess withheld may need to be reclaimed separately from HMRC afterward, a more time-consuming path than securing treaty relief upfront.

Must check: Tax Residency Certificate

Worked Example: Interest Payment Under the Treaty

A UAE-resident company lends AED 2,000,000 to a UK-based subsidiary, earning AED 100,000 in annual interest income. Absent the treaty, the UK could apply its domestic withholding tax to this interest payment before it reaches the UAE lender. Because the UAE company holds a valid TRC and the loan terms are on arm’s length commercial terms, no UK withholding tax applies under Article 11 of the treaty, the full AED 100,000 reaches the UAE lender. Had the loan carried an above-market interest rate structured primarily to shift profit rather than reflect genuine commercial terms, the excess portion above the arm’s length rate could instead be recharacterized and taxed under UK domestic law, consistent with the treaty’s anti-abuse provisions.

Determining Residency for Treaty Purposes

Where a company could be considered resident in both contracting states, the competent authorities of the UAE and UK engage in mutual consultation to determine the company’s residency for treaty purposes, resolving the ambiguity through direct government-to-government coordination rather than leaving the taxpayer to determine unilaterally which country’s rules apply.

Frequently Asked Questions (FAQs)