Are you concerned that your profits and assets could be subject to abusive double taxation as a result of incorrect application of the France-EU tax treaty? Fortunately, this bilateral agreement provides the legal bulwark that is essential for establish your tax residence and prevent that your dividends, salaries or property income are not subject to the combined tax burden of both countries. Master the subtleties of permanent establishment and the technical mechanisms for eliminating tax so that you can secure your assets and legally optimise your situation without making costly mistakes when dealing with the authorities.
Tax residence: the starting point for understanding everything
This section is the starting point. Before we even talk about taxes, we need to know where you are considered to be. tax resident. This is the keystone of the whole convention.
The headache of dual residence: how the convention settles the issue
Tax residency remains the number one criterion. Often, French and UAE domestic rules overlap, creating a technical double residence. This is precisely where the convention intervenes to arbitrate.
Article 4 acts as an impartial arbiter. It imposes a strict hierarchy of criteria for deciding this dispute. The objective is simple: you must only have’a single country of residence for the application of the treaty.
This determination is fundamental. It determines the taxation of virtually all your worldwide income. An error of interpretation here can lead to serious financial and tax consequences for your assets.
Decisive criteria for individuals
You must apply the hierarchy of article 4 in the exact order. We only move on to the next criterion if the previous one is not sufficient to make a decision.
First, look at your permanent home, i.e. your available accommodation. If you have two, we look at the centre of vital interests your closest personal and economic ties. This is often where it all comes down.
If there is still any doubt, we look at your usual place of residence, where you physically spend most of your time. As a last resort, nationality will decide. Rest assured, these borderline cases are much rarer in practice.
And for companies? the effective head office
For a company, the rule is more straightforward. If your structure is resident in both States, the treaty will apply to it. is connected only with the State in which it has its place of effective management.
This is the place where the real strategic decisions are taken, not just a postal address. This is a classic trap. Be vigilant about the actual management to avoid any reclassification, especially during the setting up and running a business daily.
How are your company's profits taxed?
Now that the question of residency is (more or less) clear, let's see how the tax treaty France UAE treats income starting with those of your company.
The key concept: permanent establishment
You need to grasp the concept of permanent establishment. It is the absolute key to taxation of profits. Without this specific status, the other country cannot touch your profits.
The convention defines it as a business fixed installation. Think of a concrete physical presence: a head office, a branch, an office or a factory.
Beware of construction sites. They only become a taxable permanent establishment only if their duration strictly exceeds six months.
Activities that do not create a permanent establishment
This is where optimisation becomes interesting. Certain activities, even those carried out via a fixed installation, are excluded by the Treaty. They are considered to be «preparatory or ancillary», which means that they cannot be carried out via a fixed installation. avoids local taxation.
You can maintaining a facility without triggering taxation if you restrict yourself to non-commercial transactions. The agreement sets out a precise list of these exceptions:
- Storage or display of goods belonging to the company.
- Buying goods or collecting information for the company.
- Any other activity of a preparatory or auxiliary nature.
- The combination of these activities, if the unit remains auxiliary.
The principle of taxing profits
The general rule is simple: your company's profits are taxable only in its state of residence. If you are based in the UAE, France does not tax your total income.
However, there is one exception. If the company has a permanent establishment in the other State, the profits attributable to that permanent establishment become taxable there.
Let's stress the word «chargeable». Only the directly generated profits by this local structure are concerned, not all the company's turnover.
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Dividends, interest, royalties: the fate of capital income
If a French company pays you dividends and you are resident in the United Arab Emirates, the rule is clear. Under the treaty, these sums are only taxable in the UAE, This deprives France of its usual right of taxation.
But there is one condition sine qua non: you must be the actual beneficiary of the funds. This clause prevents artificial arrangements. In practical terms, since the Emirates do not tax this income, it often amounts to a taxation at 0 %.
In addition, you should know that for a UAE resident, any withholding tax collected by France at source is fully refundable.
Dividends: taxed exclusively in the state of residence
This favourable tax logic also extends to income from debt (interest) and royalties from copyright or patents. The mechanism remains strictly identical to that applied to dividends.
Taxation is therefore carried out exclusively in the State of residence of the beneficial owner. In other words, if a French bank pays interest to an investor based in Dubai, the French tax authorities can deduct absolutely nothing from these amounts.
The exception that proves the rule: connection to a permanent establishment
But don't be too quick to claim victory, because this protection is not absolute. Exclusive taxation in the State of residence ceases to apply in a specific scenario provided for in the treaty.
If this income is directly connected to a permanent establishment or a fixed base that the beneficiary has in the other State (the source), then they are taxed there. Here, economic logic takes precedence over residence.
This is typically the case for dividends from a French subsidiary that can be traced back to the French branch of an Emirati company.
Property income and capital gains: specific rules
Let's move on from the world of business to that of property and investment. Real estate and capital gains are subject to a very specific set of rules. different logic, often linked to the location of the property.
Real estate: the law of the land first and foremost
Forget about complex arrangements for your buildings. The agreement is clear on this point: the income from property is always taxable in the State where the property is physically located. This is a strict territoriality rule with no notable exceptions.
In practical terms, if you live in Dubai but rent a flat in Paris, the French tax authorities will not let you off the hook. These rents remain taxable in France, It's as if you'd never left. Expatriation does not wipe out property tax.
Capital gains: a distinction between movable and immovable property
For capital gains, the text makes a distinction between net demerger by type of asset sold. The sale of a property should not be confused with the sale of a portfolio of bonds or securities.
If you make a capital gain on the sale of a property, the logic remains the same as for rental income. Taxation takes place in the State where the property is located, regardless of your new tax residence status in the Emirates.
For other moveable assets, however, the situation changes radically. The guiding principle becomes’taxation exclusively in the seller's State of residence, This offers far greater opportunities for optimisation for the informed investor.
The special case of capital gains on shares
Note that there is a «safeguard clause» for substantial shareholdings. The tax authorities refuse to see large shareholders leave without get your share of the cake on shares in French companies.
Thus, the capital gain arising from the sale of shares representing more than 25 % of a company's capital remains taxable in the State where the company is resident. You can't just move to wipe the slate clean on your majority shares.
This measure blocks tax evasion on the assets of French companies. This is a major point to analyse before structuring your holdings.
Salaries, self-employed workers and pensions: treatment of earned income
Let's move on to the income you earn from your work. Whether you are employed, freelance or retired, the agreement has precise rules for knowing whether France or the UAE has the right to tax you.
Employees: the 183-day rule
The principle for salaries favours taxation in the State of residence of the employee. This is the default rule, to avoid administrative complications. But there is one frequent exception that often upsets everything.
If the work is physically carried out in the other State, salaries are immediately taxable. This is the strict rule for the place where the activity is carried out. You cannot ignore this geographical reality.
There is an exception to the exception: the salary remains taxable in the State of residence if the stay in the other country is less than 183 days and the strict conditions are met.
The self-employed: the importance of a fixed base
For freelancers such as consultants or lawyers, income is taxable in their State of residence. This is the guiding principle that simplifies life for mobile freelancers. You keep your tax affairs at home.
The situation changes radically if they have a habitual fixed base in the other State from which to practise. In this specific case, income attributable to this fixed base is taxable there. The legal concept is very similar to that of a permanent establishment.
Pensions and retirement: a distinction you need to know
Private pensions, paid on the basis of previous salaried employment, follow a similar pattern to that of private pensions. simple rule to understand. However, many retired expatriates forget to check this point.
In principle, they are non-taxable in France for a UAE tax resident, which changes everything. This is a major advantage of the agreement for retired expatriates seeking to optimise their purchasing power.
Please note, however, that pensions paid by the French social security system remain payable, still taxable in France.
Eliminating double taxation: the practical mechanism
We have clarified who has the right to tax. Now the real question: how to avoid the double financial penalty ? This is where the mechanics of the convention come in.
Tax credit: the French method
France favours a specific approach to neutralising double taxation: the tax credit method. This system replaces the outright exemption often seen elsewhere.
If income from an Emirati source becomes taxable in France, the tax authorities grant a credit. This amount is strictly equal to to the theoretical French tax calculated on the same income.
In practical terms, even if tax in the Emirates is zero, this mechanism cancels out the tax burden in France. The end result is therefore equivalent to a total exemption of these gains.
Summary table of tax treatment
To see the real impact on your assets, a table is worth a thousand words. Here is the summary of place of taxation for the adult income of a UAE resident.
| Type of income | Right to tax under the Convention | Disposal mechanism in France |
|---|---|---|
| Dividends from French sources | WATER (residence) | Exemption (no withholding tax) |
| Interest from French sources | WATER (residence) | Exemption (no withholding tax) |
| Rent from a property in France | France (source) | Taxation in France |
| Capital gains on property in France | France (source) | Taxation in France |
| Salary for a job in France (>183d) | France (source) | Taxation in France |
| Profits of a company in the UAE (without PE in France) | WATER (residence) | Exemption in France via tax credit equal to French tax |
The importance of expert support
Legal theory often differs from administrative reality. Each case has its own specific features, which can make it difficult to apply the law. change your tax status completely.
Don't play sorcerer's apprentice with your money. Mistakes cost money. Consult an expert in accounting and taxation in Dubai is the only way to secure your assets for the long term.
The France-EAU tax treaty offers real opportunities for optimisation for entrepreneurs and investors. However, the borderline between tax residence and double taxation remains complex. To secure your assets and avoid administrative pitfalls, expert support is essential to navigate smoothly between these two jurisdictions.
What is the tax treaty between France and the United Arab Emirates?
The tax treaty between France and the United Arab Emirates is a bilateral agreement, initially signed in 1989 and amended in 1993.’eliminating double taxation for residents (individuals and companies) of both countries. It sets out clear rules for determining which country has the right to tax a particular type of income (wages, dividends, company profits, property).
In addition to income tax and corporation tax, this treaty also covers property wealth tax (IFI) and inheritance tax. It is an essential legal tool for securing investments and expatriations, This is achieved by avoiding conflicts of tax residence using hierarchical criteria such as the permanent dwelling place or the centre of vital interests.
How can double taxation be avoided thanks to this agreement?
To avoid you paying tax twice on the same income, the treaty uses two main methods. The first is the exclusive attribution of the right to tax: for example, dividends or interest received by a UAE tax resident are generally taxable only in the Emirates, which means you pay tax only in the UAE. fully tax-exempt in France on these sums.
The second method, used when France retains the right to tax (as in the case of income from property located in France), is the tax credit mechanism. In practical terms, you declare the income in France, but the tax authorities calculate a tax credit (often equal to the corresponding French tax) which is deducted from your final tax bill. This cancels or reduces the tax burden to ensure neutrality.
