United Arab Emirates – tax treaties and information exchange agreements; new free zone

UAE – tax treaties and information exchange agreements

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.

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UAE tax treaty network updates

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.

UAE-United Kingdom tax treaty

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:

  • Interest income (subject to conditions) and royalties beneficially owned by the receiver are taxable in the country of residence.
  • Gains from the disposal of listed shares of companies in the source country are taxable in the country of residence.

UAE-South Africa tax treaty

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:

  • beneficial tax withholding rates on dividends (5 percent), interest (10 percent) and royalties (10 percent)
  • specific exclusion of taxing rights of the source country on gains from the sale of securities of local companies held by residents of the other country.

More UAE tax treaty developments

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, Tanzania, 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.

Abu Dhabi Global Market

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:

  • LTD – private and/or public companies limited by shares (for both SPV and holding company regimes)
  • restricted scope companies (SPV regime only).

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.

MESA Tax Centre

Welcome to the MESA Tax Centre, bringing you the latest news in tax from the Middle East and South Asia (MESA) region.

 
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