UAE investors to pay capital gains tax here

MUMBAI: Investors from United Arab Emirates (UAE) have to pay capital gains tax on their investments in India, according to a ruling by the Authority for Advance Ruling (AAR), a quasi judicial body which decides on the taxability of a cross-border ventures in advance.

The AAR gave this ruling on Monday on an application filed by Abdul Razaq Memon, a UAE national, who sought the opinion of the AAR on the issue of whether tax is payable on the capital gains arising from his Indian investments.

The AAR ruled that he had to pay tax. According to sources, the AAR ruled that the Double Taxation Avoidance Agreement between India and the UAE was not useful for this purpose since UAE does not have a tax regime.

Senior tax professionals in the country, however, have a different point of view. TP Ostwal, senior CA, told ET, “The AAR has earlier come to a totally opposite decision in the case of Emirates Fertilisers & Trading, a UAE - based firm. The facts were similar in that case. The AAR is being consistently inconsistent in its decisions.�

Dinesh Kanabar, deputy managing partner with RSM, the tax advisory firm, told ET, “This ruling denies tax treaty benefit for individual investors, including NRIs, for investments from UAE. One will have to study the ruling to examine whether companies and partnership would also be similarly affected. In a sense, this ruling considerably waters down the scope of the treaty.� According to Mr Kanabar, once a government enters into a treaty, it should be respected. But I-T officials differ on this.

A senior officer who does not want to be identified said, “The AAR ruling is the right decision. It has removed an anomaly. Since UAE does not have a system of taxation, the treaty for tax avoidance has no meaning.�