By means of Decree No. 10,705/2021, the Brazilian Government enacted the Treaty signed with the United Arab Emirates (UAE) to eliminate double taxation in relation to income taxes and prevent tax evasion and avoidance.
The Treaty follows the OECD model convention, so that taxation is regulated in transactions between the two countries on real estate income, corporate profits, dividends, interest and royalties, among others.
On the Brazilian side, the Treaty will cover both Income Tax and the Social Contribution on Net Profit, in addition to already considering Interest on Equity as “interest”.
The approved text also provides for the exchange of information relevant to the application of the provisions set out in the Treaty, as well as for the application of the domestic legislation of each of the contracting countries.
The elimination of double taxation will occur through the imputation method, in which the taxpayer of one country may take as credit the tax paid in the other country, but limited to the tax that would be due before the deduction was calculated.
It is important to note that the Brazil-UAE Treaty contains a provision that profits earned by a company located in a contracting country (the UAE, for example) must be taxed in that country (in this case, the UAE). Consequently, Brazilian companies that develop business in the UAE may seek to waive the rules on taxation of profits earned by a subsidiary located there, as set forth in Law No. 12,973/2014, based on the STJ’s understanding of Article VII of the Treaties.
