KPMG in the United Arab Emirates (UAE) shares news about the country’s recent moves to improve its global competitiveness by updating its tax treaty network and creating a new financial center free zone – Abu Dhabi Global Market.
To promote the UAE’s appeal to foreign investors and affirm its role as a member of the Forum on Transparency and Exchange of Information for Tax Purposes, the UAE is actively expanding its network of agreements on the exchange of tax information and the avoidance of double taxation. Recent progress on this front is outlined below.
According to recent news reports,9 the UAE has ratified its new tax treaty with the United Kingdom (UK). The tax treaty would come into force as on 1 January 2017 and clarify the taxation of cross-border income streams between the two countries. Key changes are as follows:
The tax treaty between the UAE and the Republic of South Africa, signed in 2015, entered into force on 1 January 2017. The treaty provides for:
The UAE’s tax treaty with Romania, signed in 2015, also entered into force on 1 January 2017.
The UAE has ratified tax treaties with Mauritania, Belize, Comoros Islands, Jordan, Macedonia and Andorra.
The UAE has also ratified exchange of information agreements with Argentina, Columbia, Denmark, Faroe Islands, Finland, Norway and Sweden.
Free zones play a key role in globalizing and diversifying the UAE’s economy. Dubai leads the free zone segment in the UAE, with Dubai International Financial Centre (DIFC) having developed into the region’s most prominent financial and banking hub. Further, the capital city of Abu Dhabi is a prominent business hub for multinational oil and gas companies and sovereign wealth funds.
Now, to address the vacuum of free zones in the capital to attract foreign direct investment, the UAE has created Abu Dhabi’s fifth free zone – Abu Dhabi Global Market (ADGM).
Established as a broad-based financial center, ADGM is anchored in three sectors in which Abu Dhabi has strength – private banking, wealth management and asset management – while giving participants the flexibility to expand their activities over time in response to market demand.
The ADGM’s regulatory regime is based on English common law, subject to specific ADGM legislation. ADGM has also started licensing special purpose vehicles or SPVs under a regime designed to be flexible, robust, simple and efficient.
The most popular of the various legal structures that can be registered by ADGM include:
As a newly established financial center located in an emerging market, the ADGM offers regulations and transparency that match European country laws. While the ADGM’s ultimate success as a financial hub and competitor to the other financial free zones in the Gulf region remains to be seen, the overall outlook is one of confidence.
9 See, for example, “UK/United Arab Emirates tax treaty,” Tax Journal, 25 January 2017.