I. CEPA and the Evolution of UAE–Canada Economic Engagement
The proposed free trade agreement in the form of a Comprehensive Economic Partnership Agreement (“CEPA”) between the UAE and Canada marks an important step in the evolution of bilateral economic relations. It signals a shared intent to expand trade and investment flows beyond traditional sectors and into services, technology, and knowledge-based enterprise.
In anticipation of CEPA negotiations, Canada has formally invited public and stakeholder input to help shape its negotiating priorities. That process reflects an important reality of modern trade policy: economic agreements are no longer shaped solely through government-to-government dialogue, but are increasingly informed by practitioners, businesses, and subject-matter experts operating at the intersection of domestic law and cross-border commerce.
This article proceeds on that premise. It examines how CEPA-driven commercial activity may interact with the UAE–Canada Double Tax Avoidance Agreement (the “DTAA”) and with Canada’s domestic tax mechanisms that operate before treaty outcomes become practically accessible. The objective is not to revisit the allocation of taxing rights under the DTAA, but to identify where and how recalibration of process and implementation could enhance clarity and certainty for UAE-based enterprises and better align existing frameworks with the commercial activity CEPA is intended to encourage.
II. CEPA in Context: Interaction with Existing Tax Frameworks
CEPA cannot and will not operate in isolation. Its commercial objectives will intersect with multiple existing legal and fiscal frameworks that continue to govern cross-border activity between the two countries. One such framework is the UAE–Canada DTAA, which was negotiated in a materially different economic and regulatory environment.
While the DTAA has historically provided a stable basis for bilateral investment and trade, the nature of cross-border activity it was designed to address differs from the service-driven, digitally enabled, and SME-led commerce that CEPA is expected to accelerate. As a result, certain treaty mechanisms may interact with CEPA-driven activity in ways that warrant recalibration to preserve certainty and commercial efficiency.
The relevance of this interaction lies not in abstract treaty interpretation, but in how taxing rights allocated under the DTAA are given effect in practice through domestic compliance mechanisms.
III. Withholding at Source as an Illustrative Point of Intersection
There are several points at which CEPA-driven activity may intersect with the existing DTAA framework. This article focuses on one illustrative and commercially significant example: Canada’s approach to withholding tax on cross-border payments.
Under the DTAA, taxing rights over business profits are generally allocated to the state of residence unless the non-resident enterprise carries on business in the source state through a sufficient nexus, such as a permanent establishment or sustained physical presence. In theory, this allocation provides certainty to UAE-based enterprises engaging with Canada.
In practice, however, Canada’s domestic withholding framework operates at the point of payment. Certain provisions of Canada’s Income Tax Act (the “ITA”) require Canadian payers to withhold tax at prescribed rates on payments to non-residents, subject to potential treaty relief, and expose those payers to direct liability if withholding is not effected where required. Faced with this risk, Canadian payers typically err on the side of caution and withhold by default unless relief is obtained from the Canada Revenue Agency (the “CRA”) in advance.
As a result, while the DTAA ultimately determines whether or not Canada has the right to tax a particular stream of income, withholding frequently occurs earlier, at the payment stage, before the treaty position is practically invoked.
IV. Regulation 105 and Practical Commercial Friction
Although the ITA contains withholding mechanisms in multiple contexts, including under Parts I and XIII, this dynamic is most visible in relation to business income under Regulation 105, which mandates withholding on payments to non-resident enterprises under Part I.
From the perspective of a UAE enterprise, entitlement to treaty protection under the DTAA does not translate into automatic relief at the commercial level. Access to relief from Regulation 105 withholding generally requires the UAE company to seek and be granted an advance waiver or clearance from the CRA, a process that can be time-consuming, costly, and administratively unfamiliar. Absent such advance relief, the Canadian payer is required to withhold tax at source.
Once the Canadian payer withholds and remits the tax to the CRA, the non-resident enterprise, i.e., a UAE enterprise here, is exposed to a series of downstream commercial and administrative consequences. The most immediate ramification is cash-flow blockage equal to the withheld amount, even though at treaty-reduced rates, pending a refund process that may take a considerable period of time to conclude. During this period, capital that would otherwise be deployed toward project execution, staffing, or market development remains locked within the Canadian tax system.
Accessing a refund typically requires the non-resident enterprise to engage Canadian tax advisors, prepare and submit compliance filings, and correspond with the CRA to substantiate its treaty position. These steps impose additional professional costs and management effort that are often disproportionate especially to the scale or duration of short-term or pilot engagements. In some cases, disagreements regarding entitlement or timing of refunds may arise, leading to avoidable disputes in a foreign jurisdiction and further extending resolution timelines and uncertainty.
From Canada’s perspective, this structure is deliberate. Canadian payers operate in a highly compliance-driven environment and face direct exposure for any failure to withhold where required. In contrast, determining whether a non-resident service provider ultimately has no taxable presence in Canada often depends on fact-intensive analysis that cannot be conclusively resolved at the payment stage. At a policy level, withholding at source therefore functions as a front-end safeguard, protecting the Canadian tax base against non-bonafide or difficult-to-verify cross-border payments, particularly in services transactions where enforcement after the fact may be challenging.
However, for UAE-based enterprises, particularly SMEs and service providers engaging in short-term, project-based, or advisory work, this creates a practical disconnect. While the DTAA may allocate taxing rights to the UAE, access to that outcome is often contingent on advance administrative engagement or post-payment recovery mechanisms. These processes, though well established within the Canadian system, may be unfamiliar, resource-intensive, and disproportionate for UAE businesses that are newly operating in a corporate tax environment and for whom withholding on outbound services is not the norm.
A simple illustration may be a UAE-based advisory firm undertaking a six-week project in Canada involving limited on-site presence. Based on the duration and nature of the engagement, such activity should not ordinarily be assumed to constitute carrying on business in Canada through a sufficient nexus under the ITA, nor give rise to a permanent establishment under the DTAA. Nonetheless, withholding may still occur by default unless advance relief is secured.
Where tax is withheld, the resulting cash-flow remains blocked until the UAE firm files the relevant Canadian tax return after the end of the fiscal year and seeks a refund through the CRA’s administrative process. That process, which operates on discretionary timelines and fact-intensive review, can extend well beyond the completion of the underlying project. The combination of delayed cash recovery and additional compliance effort can materially influence commercial decisions at an early market-entry stage.
V. Implications for CEPA-Driven Activity
The interaction between CEPA and Canada’s withholding framework is therefore not rooted in any single statutory rule, but in the sequencing of treaty outcomes against domestic compliance requirements. Where such frictions persist, they risk deterring precisely the short-term, exploratory, and SME-led engagements that CEPA is intended to catalyze, thereby undermining its effectiveness as a practical market-entry instrument.
If CEPA is to function as a genuine market-entry instrument for services and SMEs, its effectiveness will be measured not only by market-access commitments on paper, but by whether first-time entrants can transact across borders without encountering disproportionate administrative friction at the implementation stage.
As a free-trade agreement, CEPA seeks to lower barriers to cross-border services and commercial collaboration. Yet the existing withholding framework places a compliance burden at the point of payment, before treaty outcomes become practically accessible. For UAE enterprises seeking to enter or expand in the Canadian market, this timing mismatch can affect pricing, cash flow, and commercial decision-making, creating friction that runs counter to CEPA’s facilitative objectives.
VI. A Negotiating Opportunity for the UAE
Addressing this interaction does not require a departure from established taxing principles or a renegotiation of treaty allocations. Rather, it highlights the value of calibrated procedures that allow treaty outcomes to be accessed in a predictable and proportionate manner.
A UAE negotiating position would logically focus on how treaty protection is accessed in real commercial transactions, particularly for outbound UAE enterprises with no taxable presence in Canada. Procedural mechanisms such as simplified advance waiver processes, treaty-linked safe harbours for low-risk service engagements, standardized certification, or accelerated refund pathways would not only work well for outbound UAE businesses, but will also preserve Canada’s enforcement framework while reducing unnecessary administrative burden on both sides. After all, complex waiver and post-payment refund procedures consume CRA resources without increasing net revenue. Therefore, streamlining these processes would enhance efficiency for tax authorities as well as businesses, which will in turn aid the objective of ease of doing business that the proposed CEPA seeks to promote.
Regulation 105 is used here as an illustrative example because it sits at the intersection of treaty allocation and payment-stage compliance. As trade expands under the proposed CEPA, similar sequencing frictions are likely to arise in other areas where treaty outcomes are mediated through domestic procedures. A focused review of these interaction points would allow the UAE to ensure that existing tax frameworks operate as effective enablers of CEPA-driven commerce.