Tax: how to declare income from Dubai when you remain a tax resident of France?

If you are a tax resident of France, you must declare your income from all sources, including income from the United Arab Emirates. You may be subject to double taxation, meaning that your income is taxed in both countries. However, tax treaties between countries can reduce or eliminate this practice. This is the case with the international tax treaty (ITT) signed by France and the United Arab Emirates, which prohibits double taxation of the same income by the tax authorities. Thus, if a person is tax domiciled in France and receives dividends in the United Arab Emirates, they will have to complete certain formalities to optimize the tax treatment of their income. First of all, it should be specified that every person domiciled in France (within the meaning of Article 4B of the French General Tax Code) is required to declare all worldwide income in France. This declaration does not necessarily mean that all income will be taxed in France. French-source income taxable in France is not treated in the same way as foreign-source income. Thus, several options are available to a person who wishes to optimize the tax treatment of their income. Dividends, that is, investment income derived from an investment in a company, are also subject to this declaration requirement. However, depending on the nature of the securities held and how they are held, their treatment by the French tax authorities differs.

Flat Tax on dividends

For the first option, a person receiving dividends from Dubai and therefore having a passive role (taking little part in the company) will see their dividends taxed at 30% in France. This is known as the single flat-rate withholding tax (PFU). In accordance with the ITT between the United Arab Emirates and France, dividends paid to a resident of another state are taxable in that other state. However, the state where the paying establishment is located may impose withholding tax. Since the United Arab Emirates do not tax dividends, no withholding tax is applied. France will therefore tax the dividends alone at 30%. A taxpayer tax domiciled in France may also choose not to opt for the PFU and instead choose the progressive tax scale. They must then check box 20P of form no. 2042 (tax return) in which they declare their dividends in order to benefit from progressive taxation. It should nevertheless be emphasized that the PFU remains a preferential tax regime for most taxpayers. Dividends paid by a company must be declared on form no. 2042, in box 2DC entitled “Income from shares and equity interests”; the amount indicated must be gross.

Applying the international treaty when you have active income

A much more advantageous approach is to carry out actual employment in the United Arab Emirates while maintaining your tax domicile in France. As a result, if a person carries out a professional activity in Dubai, they must file a French and Emirati income tax return in their country of residence for the income received, including salaries and dividends. It must therefore be possible to prove that the taxpayer regularly travels back and forth to the United Arab Emirates in order to take an active part in the business. Accordingly, the French tax authorities will be required to take all of the individual’s worldwide income into account and calculate the effective tax rate (see Tax residence in France: who is considered a tax resident?). After that, the effective tax rate will be applied only to French-source income. Thus, let us take the example of someone who is tax domiciled in France and works in Dubai. Let us assume that they earn 25,000 euros per year in France and receive 60,000 euros per year in salary outside France. The effective tax rate will be calculated on 85,000 euros (French income + Emirati income). The effective rate will then be applied only to French-source income (25,000 euros), and not to the 60,000 euros of Emirati-source income, in order to comply with the ITT between France and the United Arab Emirates. The taxes will be paid in France. The procedure results from combining income tax returns numbers 2042, 2042 C, and 2047, which makes it possible to override domestic law and apply certain provisions of the international tax treaty signed between France and the United Arab Emirates on July 19, 1989. Thus, if you receive most of your salaries or dividends from the United Arab Emirates while being a French tax resident, this option may be a very good way to optimize the tax treatment of your income.

Remain a French tax resident

Consequently, establishing a company in the United Arab Emirates represents a real opportunity for people wishing to conduct an international business activity. Indeed, the French state will not be able to tax too heavily the professional activity of a French person carrying out business in Dubai, United Arab Emirates.