Ras Al Khaimah: Domestic Taxation
Double Tax Treaties
Ras Al Kaimah is a 'no tax' emirate. Accordingly double taxation treaties are aimed at making it 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 Ras Al Kaimah.
Ras Al Kaimah (the United Arab Emirates) has an extensive and growing list of double tax treaties, which currently numbers 66 countries. This network includes treaties with China, France, Germany, India, Indonesia, Italy, Luxembourg, Malta, Malaysia, the Netherlands, Singapore and South Korea. The latest treaty signed is that with Japan.
In May 2008, negotiating teams from the Netherlands Antilles and the United Arab Emirates kicked off the first round of negotiations towards a double taxation treaty, whilst in October of that year, the UAE and Japan were said to be close to concluding a double tax treaty. A new tax treaty between the UAE and Vietnam was signed in February 2009.
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. However it is wise to study the text of the treaties themselves before assuming anything about the tax treatment of untaxed income flows originating in Ras Al Kaimah.
Other additions to the UAE's list of bilateral tax agreements were Luxembourg in 2005, and the Netherlands in 2007.
Welcoming the agreement with Luxembourg, signed in November 2005, 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 th 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."
In June 2009, Foreign Minister of the United Arabic Emirates, Sheikh Abdullah Bin Zayed Al Nayan and Cypriot Minister of Foreign Affairs Markos Kyprianou discussed the possibility of a double taxation avoidance agreement between their respective countries. In October 2010, officials held the first round of negotiations on two draft agreements for the avoidance of double taxation on income and protection and encouragement of investment. The agreements are seen by both sides as vital instruments for commercial and economic development in their respective countries.
In November 2009, the government of the United Arab Emirates confirmed the signing of a convention for the avoidance of double tax and fiscal evasion with respect to taxes on income with Bangladesh.
Commenting on the draft agreement, Khalid Al Bustani, Executive Director for International Financial Relations at the UAE Ministry of Finance, stated that:
"The UAE is a leading country with regards agreements to avoid double taxation. These agreements bring about a positive impact on investment promotion, economic cooperation and trade between the UAE and other countries. The number of such agreements that the UAE has signed with various countries has now reached 49."
The text of the agreement aims to facilitate a beneficial tax environment to encourage economic activity, by providing an exemption for government organizations from taxes on any income, and reducing the tax on private investments from 17.5% to 5%, among other measures. Income stemming from the aviation sector is also exempted under the pact.
“This draft agreement will enhance the trade partnership between the two countries and ease the tax burden on the states’ investments in its public and private sectors. It also facilitates the movement of capital and goods in addition to encouraging joint investments between the two countries. It is in harmony with the vision of MOF with regard to increasing cooperation and development of economic relations with other countries across the world,” Al Bustani concluded.
Younis Haji Al Khoori, Director General of Ministry of Finance, signed an initial DTAA with Hong Kong in July 2010. Al Khoori said that the agreement will have a positive impact on protecting investment and securing economic and trade cooperation. "The UAE is Hong Kong's largest single export partner in the region. It will create more opportunity for growth of existing businesses and the formation of new ones and this will add to the prosperity of our two peoples. According to a report issued by the Hong Kong Trade Development Council, 54% of Hong Kong's exports to Middle East in the first 10 months of 2009 were to UAE", he added.
Also in July, Mr Al Khoori signed a DTA on income with the Republic of Ireland. Commenting on the signing of agreement, Al Khoori said: "This agreement is one of the most important pillars that contribute to developing and strengthening cooperation and partnership between the two countries including all areas of common interest. The agreement seeks to create the suitable investment environment attracting governmental investment and sovereign funds, in addition to encouraging private sector investment in both countries".
In November 2010, the UAE and Georgia signed a double taxation avoidance agreement. The agreement exempts government authorities and private sector organizations from tax imposed by Georgia on interest earnings, among other benefits.