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International businesses are often faced with issues of double taxation. Income may be taxed in the country where it is earned, and then taxed again when it is repatriated in the business home country. In some cases, the total tax rate is so high, it makes international business too expensive to pursue.

To avoid these issues, countries around the world have signed hundreds of treaties for the avoidance of double taxation, often based on models provided by the Organization for Economic Cooperation and Development (IECD). In these treaties, signatory nations agree to limit their taxation of international business in an effort to augment trade between the two countries and avoid double taxation.

In this regard, it’s deemed informative to delve deeper into how double taxation impacts businesses and individuals in both Lebanon and the UAE.

  •  Lebanon

Lebanon’s taxation system relies on different forms of taxes, imposed on individuals and businesses under different rates, additionally there are taxes implemented on dividends, interests, and capital gains.

Despite efforts to streamline taxation, Lebanon is also a victim of double taxation and its potential effects on hindering across border business operations, influencing financial decisions, and economic behavior. However, such a threat that results from this phenomenon can be decreased through double taxation treaties. In-fact Lebanon signed multiple double taxation treaties (DTTS) that establish a solid mechanism between different countries in order to avoid dealing with implementing taxes on the same income. For instance, there’s a clear agreement between Lebanon and Cyprus concluded from article 22 that states the following: “Where a resident of a contracting state derives income which, may be taxed in the other contracting state, the first mentioned state shall allow as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in that other state.  Such a deduction shall not ,however, exceed that part of the income tax as computed before the deduction is given, which is attributable to the income which may be taxed in that other state.” Hence it appears that the deduction of double taxation was evidently cover, through multiple treaties established between Lebanon and different countries such as, Italy, Russia, and Kuwait and so on.

In light of discussing Lebanon’s approach concerning double taxation, it’s deemed crucial to explore this matter and its effects in UAE, in order to understand the strategies implemented across various jurisdictions, and legal domains.

  • UAE:

The tax system in the UAE can be considered favorable for both companies and individuals for instance, there is no individual tax, and in some cases no corporate income tax.

Double taxation occurs in the UAE through similar patterns of imposing taxes on the same source of income, thus the taxpayer is subjected to duplicate taxes, on the same tax base in two different countries. This phenomenon impacts transactions and business deals across countries through discouraging investments. However, in the process of avoiding such outcomes, public and private sectors in the UAE can benefit from Double Taxation Avoidance Agreements (DTAs). For instance, UAE conducted over 137 DTAs between its trade partners and business associates. These treaties aim to facilitate the purpose of avoidance of such taxes, deriving from how it can negatively influence economic development of the country and discourage capital movements.

In light of what was already stated, UAE and Qatar rendered an agreement in a form of a treaty, in order to prevent and avoid implementing double taxation, for better investment flow, and to eliminate potential disputes regarding this issue.

After briefly discussing the issue of double taxation in both Lebanon and the UAE, it is pertinent to highlight that these countries are governed by a non-double taxation treaty implemented in 1999. This treaty aims to enhance economic collaboration between Lebanon and the UAE by facilitating the exchange of information, thus enhancing the enforcement of its provisions.

Finally it is worth mentioning that navigating the issues of double taxation may require legal expertise to ensure compliance with relevant laws and regulations while decreasing tax liabilities, so it’s important to consult tax professionals to minimize the effects of double taxation.

Charbel

Author Charbel

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Aoun Law Firm

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