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The header() function just modifies HTTP headers. The code you posted sets a Content-Type header, which is important for telling browsers and other clients what type of file you're serving.
The <?xml version="1.0"?> line you're talking about is part of the document itself, and not affected by the HTTP headers.
Your tags say you're using DOM to create your XML document. If you change your DomDocument constructor to also pass the charset,
$doc = new DomDocument('1.0', 'UTF-8');
It should output that charset in the XML document.