Double Tax Treaty vs UK Resident rules

Saudi Arabia has a Double Tax Treaty with UK but no income tax is levid on employment income on foreign nationals living in Saudi Arabia. If I worked in Saudi Arabia for a local Saudi Arabian employer but have also spent more 90days in the UK. Therefore if I am considered UK tax resident will I have to pay tax on my Saudi Arabia employment income or will the Double Tax Treaty ( Article 14) take precedent and I will not have to pay any UK Tax (even though actual tax paid in Saudi Arabia is zero)?

Hi,
You need to determine your actual residence status first to see if you would be liable in the UK on your worldwide income -
RDR3: Statutory Residence Test (SRT) notes
Thank you.

Thank you. Assuming my residence status is UK tax resident which in theory could make me liable in the UK on the worldwide income but can I claim relief under the Double Tax Treaty with Saudi Arabia (even though there is no employment tax in that country) . In short does the Double Tax Treaty with Saudi Arabia take precedent ?

Not HMRC, you need to determine if meet any automatic non UK tests, if none then UK tests, if none then sufficient ties tests. That determines if statutorily resident in UK for the year. If you are SRT in the UK you also need to consider if also SRT in Saudi (according to their rules) and in that situation you consult DTA to determine Treaty residence. This is separate from BUT DOES NOT CANCEL your SRT in the UK, it simply rules what happens for various sources in that situation. Looking at the Saudi DTA its a situation for employment that both countries can tax but depends on where duties exercised etc (the fact Saudi dont isnt relevant)... IF you are UK Treaty resident the position would be (and reversed if Saudi Treaty Resident so replace UK with Saudi) DTA says "salaries, wages and other similar remuneration derived by a resident of a Contracting State (UK) in respect of an employment shall be taxable only in that State (UK) unless the employment is exercised in the other Contracting State (Saudi). If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State (Saudi) ."...so, if you are SRT resident in both, you need to determine Treaty residence...because if Treaty residence is the UK you are liable here as the paragraph says "may" which in Treaty meaning means it will be as its HMRC/legal speak for "is allowed to/can/is liable" not "might"!! If Saudi Resident you wouldnt appear to have an issue as the employment is exercised there, but it all comes down to initially if SRT in both and then where Treaty residence, understanding that Treaty residence does not "replace being SRT resident in the UK) Sorry its so complicated...I didnt write the rules ;-)

Thank you. I would most likely be UK resident under Article 4 of the DTA because I have a permanent home and family in UK. However I am also resident in Saudi Arabia in 2024 under their tax rules. The question is will I be taxed by HMRC on my Saudi employment income even though Article 15 of the DTA states that employment income should only be taxed in the country the employment is performed.

Hi,
Unless there is mention in the tax treaty that a specific income is only liable in Saudi Arabia then no. as a UK resident you are liable on your worldwide income.
Thank you.

Just looking at your first question/comment...staying over 90 days does not make you automatically SRT resident...have you checked your SRT position by reference to number of ties needed to become SRT resident?...there is "wiggle room" re days depending on whether table A or B applies (dont have enough info re which one applies...youd need to apply to your personal circumstances) and then the number of ties needed is different accordingly...are you certain you dont qualify under sufficient ties?...just trying to cover the bases...

Article 15 of DTA with Saudi Arabia clearly that states that employment income should be taxed in the Contracting State where the employment was exercised. The only circumstances in which the same employment income could be taxed in the First Contracting State are listed as in sub para a to c and all must be satisfied. Could someone clarify this aspect of Article 15 please?

If your treaty residence is UK then UK is first contracting state, it then says it "may" be taxed in the other state if exercized there, i.e Saudi have a right to tax it (any Euro country would apply tax in such circumstances), it says "may" it doesnt say "only" by reference to the exercized part of the employment para, so it may also be taxed in the UK under worldwide income rules...as you state you are a UK SRT resident...which catches worldwide income

Actually both paras 15(1) and 15(2) states the word "only" in relation to employment income 15(1) Subject to the provisions of Articles 17 and 18, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable ONLY in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State. 15(2) Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable ONLY in the first-mentioned State if: (a)the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the fiscal year concerned, and (b)the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and (c)the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. To be taxable in the first mentioned state (UK) my reading is all 3 conditions would need to be satisfied. Is that correct?

No, but explaining why here is somewhat complicated/difficult...you would be better off in this situation by looking up a decent sized accountancy firm near you with a residence specialist...its better explained by someone in person.

Hi,
The articles in any tax treaty are reciprocal. You may find it easier to substitute 'contracting state' with Saudi Arabia and 'other contracting state' with UK, or vice versa and re-read the article. In prinicple, if you are a resident of the UK, then you are taxable on your worldwide income in the UK and the article is stating those situations where it would not be taxable in the UK. For a more detailed explanation, you will need to contact our Self Assesment team for advice, or seek professional advice.
Self Assessment: general enquiries
Thank you.