Dubai Double-Tax Treaties

Dubai is a 'no tax' emirate. Accordingly double taxation treaties are aimed at making Dubai a more attractive territory in which to operate by reducing taxation levied in the foreign jurisdiction on profits remitted abroad by foreign corporations operating in Dubai.

There are double taxation agreements with Algeria, Jordan, Sudan, Syria, Kuwait, Yemen, Egypt, Finland, France, India, Malta, Pakistan, Poland, China, Germany, India, Indonesia, Italy, Malaysia, Poland, Romania, Singapore, South Korea, Sudan, Algeria and Turkey.

Under these treaties profits derived from shares, dividends, interest, royalties and fees are taxable only in the contracting state where the income is earned.

Although corporate income tax is not levied in the UAE the provisions of the treaties do not state that such income must be taxed to qualify for benefits.

Thus dividend income paid by a UAE company to a company which has a double taxation treaty with UAE may not be taxable in the hands of the foreign parent corporation even though it has not been taxed in the UAE.

However, many countries have anti-avoidance provisions which either set minimum levels of tax for income to benefit from tax treaties, or set out lists of low-tax countries which do not qualify under tax treaties. Therefore it is necessary to study the tax legislation of each treaty partner as well as the text of the treaties themselves before assuming anything about the tax treatment of untaxed income flows originating in Dubai.

In November 2005, Government officials from the United Arab Emirates and Luxembourg signed a new double taxation avoidance agreement intended to boost bilateral trade and investment between the two states.

Welcoming the agreement, Dr Mohamed Khalfan bin Khirbash, UAE Minister of State for Finance and Industry, observed that:

"This agreement will help provide equal taxation treatment to investors in the UAE and Luxemburg. Moreover, it provides an environment that stimulates foreign direct investment, encourages business ventures, and enhances the cooperation along with the economic growth levels within the two countries. Further, it contributes new common projects that benefit the national economic outcomes of the two countries."

"Moreover, the agreement encourages tourism and bilateral trade between the two countries especially after the implementation of income and profit tax exemption regulations granted to national air cargo companies. Emirates airlines, Al Ittihad, Air Arabia, and any air transportation company will benefit from such exemptions."

Dubai Other International Agreements

Speaking at a Global Banking Strategy Summit held in Dubai in April, 2004, Abdulrahim Mohamed Al Awadi, assistant executive director in charge of the UAE Central Bank's Anti-Laundering and Suspicious Cases Unit announced that the UAE is willing to provide assistance to other countries looking to draft new anti-money laundering legislation and to create financial intelligence units.

He also reiterated the commitment of the United Arab Emirates to its own anti-money laundering and terrorist financing campaign, and suggested that the jurisdiction has shown leadership in the region.

"Being in the vanguard in the global fight against money laundering and financing terrorism, the UAE is keen to share its experience with regulators from other jurisdictions," Mr Al Awadi told delegates, according to the Khaleej Times Online.

Outlining initiatives put in place by the authorities in the United Arab Emirates, he revealed that:

"The Central Bank of the UAE has set a ceiling of Dh40,000 for the amount that may be brought into the country in cash or equivalent without the need for declaration. A regulation has also been issued exclusively to money-changers to ensure that all outward remittances of Dh2,000 and above are duly documented with proper identification of customers."

The Central Bank official additionally revealed that under updated rules issued by the Securities and Commodities Authority of the UAE, the settlement of transactions amounting to more than Dh40,000 is required to be properly documented, and the identity of the investor verified.

Earlier in the year, speaking during a two-day seminar on "Interrogation and Litigation in Money Laundering Crimes" at the Dubai Chamber of Commerce and Industry, American Consul General in Dubai, Jason Davis, praised the cooperation which exists between the United Arab Emirates and the United States with regard to anti-money laundering initiatives.

He suggested that Federal Law No. 4 (2002), which allows financial authorities to seize suspicious funds whilst investigations are taking place, gives the UAE the necessary edge when it comes to combating money laundering and terrorist financing, and highlighted the continued importance of working together and sharing intelligence and expertise.

"We are here today to educate and learn at the same time. We are always interested in benefiting from other people's expertise," he announced, revealing that officials from the US Department of Justice periodically attend similar seminars in the UAE for the purposes of discussion and exchange of information.

In January 2005, the DIFC Financial Services Authority (DFSA), which is the regulatory body for the Dubai International Financial Centre (DIFC) announced that it was in talks with 20 regional and international regulators with a view to securing memoranda of understanding on information exchange.

Speaking at the time, chief executive officer of the DFSA, David King revealed that in addition to seeking an MoU with the Emirates Securities and Commodities Authority, talks with the UAE Central Bank regarding information exchange were high on the regulator's list of priorities.

The DFSA also revealed that it was seeking to sign similar agreements with the monetary authorities in other GCC member states.

Then in February of that year, it emerged that the DFSA had signed two memoranda of understanding with the Isle of Man's Financial Supervision Commission and Insurance and Pensions Authority.

The two agreements provide a framework for the provision of mutual assistance and information exchange between the two jurisdictions with regard to cross-border transactions. In addition, the agreements are designed to improve compliance, thereby helping to prevent money laundering and fraud.

The announcement followed the conclusion of a five day visit to the Gulf region by the Isle of Man's Chief Minister, Donald Gelling, and a high level Manx delegation. It also follows the recent signing of an MOU between the Central Bank of the United Arab Emirates and the Isle of Man's Financial Supervision Commission.

2006 was, as predicted, a busy year for the DFSA, which successfully concluded talks on several memoranda of understanding.

In March 2006, it emerged that the Authority had entered into a Memorandum of Understanding with the Jersey Financial Services Commission (JFSC).

The agreement formalised arrangements for cooperation and information sharing between the two regulators. It also recognised that both regulators place reliance on the quality of regulatory standards administered in the other’s jurisdiction.

In April 2006, the DFSA announced that it had reached an agreement with the Financial Supervisory Commission of the Republic of Korea (FSC).

The MoU formalized arrangements for cooperation and information sharing between the two regulators, and recognized the reliance placed by each regulator on the quality of regulatory standards administered in the other’s jurisdiction.

In September 2006, meanwhile, the Capital Market Authority of Egypt (CMA) and the Dubai Financial Services Authority (DFSA) revealed that they had signed an important memorandum of understanding (MoU), designed to enhance bilateral cooperation between the two regulators.

The agreement was designed to enhance information sharing and cooperation between the two authorities, particularly in their common roles as securities regulators, and will assist both the CMA and DFSA in important aspects of their particular regulatory roles.

In particular the MoU covered the gathering and sharing of information to enable each authority to assess the suitability of its authorized firms, to work with its exchange in the supervision of trading, and to ensure compliance with its laws.

Finally, in December 2006, the DFSA announced that it had entered into a Memorandum of Understanding (MoU) with the Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin), the Federal Financial Supervisory Authority of Germany.