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.
Dubai
(the United Arab Emirates) has an extensive
and growing list of double tax treaties, which
numbers almost 50 countries. This network includes
treaties with China, France, Germany, India,
Indonesia, Italy, Luxembourg, Malta, Malaysia,
the Netherlands, Singapore, South Korea.
In May 2008, negotiating teams form 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 t 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 Dubai.
Recent
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
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."
The
signature of the UAE-Netherlands DTAA in May
2007 coincided with an official visit by a Dutch
trade delegation, led Dutch Foreign Trade Minister
Frank Heemskerk, to the Dubai Chamber of Commerce
and Industry where he opened the Dutch Investment
Office in Dubai.
According
to Obaid Humaid Al Tayer, Chairman of Dubai
Chamber of Commerce, Dubai's direct non-oil
trade with the Netherlands reached AED3.2 billion
(USD880 million) in 2006.
"We
believe this visit would enhance our bilateral
trade volumes, benefiting from the efforts made
by the Dutch Business Council which was established
in the UAE in 1997, and its cooperation with
Dubai Chamber and other commercial organizations
in the UAE, to help promote Dutch products and
attract more Dutch investments to the region,"
Al Tayer said.
At
the time, there were 207 Dutch companies operating
in Dubai, 32 of which were fully owned by Dutch
businessmen.
"Opening
a Dutch Investment Office in Dubai is an important
step towards boosting the economic and trade
ties between the Netherlands and the UAE on
one hand, and between the Netherlands and other
GCC countries on the other," said Heemskerk.
"The
main mission of the new office will be to encourage
direct and joint investments in both countries,
exploring and making advantage of the available
opportunities of investment in the Netherlands
and the UAE and strengthening the bilateral
trade ties," he added.
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 as part of efforts to increase bilateral
economic and investment links.nd noted that
the conclusion of such agreements will encourage
more investments in Cyprus.
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.
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
AED40,000 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 AED2,000
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 AED40,000
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, then 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
that year, 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.
In
2007, the Dubai Financial Services Authority
further delivered on its commitment to expand
its network of information sharing agreements
with foreign national financial regulators,
concluding agreements with New Zealand, the
Netherlands, Guernsey, Greece, Malaysia, Luxembourg,
Switzerland, the United States and Iceland.
Of
particular significance was the mutual recognition
agreement between the DFSA and the Securities
Commission of Malaysia (SC), as a result of
which DIFC domestic funds were the first foreign
funds permitted to be sold into Malaysia.
Commenting
at the time of the agreement's signature, DFSA
chief executive David Knott observed that: "This
arrangement is a positive step for both jurisdictions,
and is intended to facilitate the cross border
flow of Islamic capital market products, as
envisaged when this initiative was first announced
in August 2006."
Under
the mutual recognition framework, the first
of its type to be concluded by either regulator,
Islamic funds that have been approved by the
SC may be marketed and distributed in the DIFC
with minimal regulatory intervention, following
the inclusion of Malaysia on the DFSA’s
list of Recognised Jurisdictions. Similarly,
Islamic funds which have been registered or
notified with the DFSA will be able to access
Malaysian investors. Supported by a bilateral
memorandum of understanding, both regulators
will also work closely in the areas of supervision
and enforcement of securities laws to ensure
adequate protection for investors.
Another
noteworthy development was the conclusion of
a Memoranda of Understanding with the national
banking and securities regulators of Switzerland
and Luxembourg, which followed Knott's visit
to Berne on April 30, and Luxembourg on May
2 that year.
“Switzerland
and Luxembourg have long been regarded as among
Europe’s leading international financial
centres," Knott commented upon the announcement
by the DFSA of the new MoUs. “There are
already a number of significant Swiss financial
institutions operating from the DIFC and there
is a level of interest from financial entities
in Luxembourg. In addition, there is a possibility
of the development of additional business between
traded markets in the DIFC and Luxembourg. These
two bilateral relationships will assume increasing
importance as each regulator relies on the quality
of regulatory standards administered in the
other’s jurisdiction.”
The
MoUs have put in place arrangements facilitating
the exchange of information and investigative
cooperation between the DFSA, the Swiss Federal
Banking Commission (the SFBC), and Luxembourg’s
Commission de Surveillance du Secteur Financier
(CSSF).
In
October 2007, the DFSA entered into an historic
Memorandum of Understanding with the United
States Banking Supervisors. The signing coincided
with a visit of David Knott to Washington, where
the International Monetary Fund (IMF) had held
its annual meeting that year. The four federal
US agencies principally responsible for banking
supervision in the United States - the Federal
Reserve, the Office of the Comptroller of the
Currency (OCC), the Federal Deposit Insurance
Corporation (FDIC) and the Office of Thrift
Supervision (OTS) - all joined as parties to
a comprehensive statement of co-operation with
the DFSA.
Commenting,
Knott stated: “This is an historic event
in the development of the DFSA. Never before
has a regulator from the Middle East entered
into such a comprehensive co-operative arrangement
with the US regulators. The attraction of the
Dubai International Financial Centre (DIFC)
as the domicile of choice for US financial institutions
in the Middle East will be further enhanced
by these regulatory relationships.”
This
agreement adopted the model for information
sharing developed by the Basel Committee on
Banking Supervision, and follows similar arrangements
the DFSA has with other significant banking
supervisors, such as the UK Financial Services
Authority (FSA) and Germany’s Bundesanstalt
für Finanzdienstleistungsaufsicht (BaFin).
Also
in 2007, the DFSA signed MoUs with the Greek
Hellenic Capital Market Commission (HCMC), the
Guernsey Financial Services Commission (GFSC),
the Icelandic FME, the Japanese Financial Services
Agency (FSA), the Dutch Financial Markets Authority
(AFM), and the New Zealand Securities Commission
(NZSC).
The DFSA
continued to expand its network of cooperation
agreements with foreign regulators in 2008.
In April of that year, it signed a joint regulatory
initiative with the Hong Kong Securities and
Futures Commission to enhance access to Islamic
financial products in Hong Kong and the Dubai
International Financial Centre. The initiative
came in the context of a Memorandum of Understanding
(MoU) between the two regulators signed earlier
in Hong Kong.
Later
that year, the DFSA signed MoUs with the Securities
and Exchange Commission of Cyprus, the Financial
Services Board of South Africa, the Irish Financial
Services Regulatory Authority, the Banking,
Finance and Insurance Commission of Belgium,
the Malta Financial Services Authority, the
supervisory arm of the Banque de France, the
China Securities Regulatory Commission, the
Monetary Authority of Singapore, and the Capital
Market Authority of Oman.
In August
2009, the Dubai Financial Services Authority
entered into a Memorandum of Understanding (MoU)
with the Bank Supervision Department of the
South African Reserve Bank.
The MoU
was signed on behalf of the DFSA by Chief Executive,
Paul Koster, having been signed earlier in Pretoria
by Errol Kruger, the Registrar of Banks and
Head of Bank Supervision at the South African
Reserve Bank.
Mr Koster
said: “The Reserve Bank regulates banking
activity in the Republic of South Africa, which
is a leader among the continent’s economies
and has some of the most significant and well
established centers for financial services activity
in the region. The Reserve Bank is one of the
oldest central banks in the world and it continues
to play a respected role as a banking regulator
regionally and internationally."
According
to the DFSA, the MoU should encourage more South
African financial institutions with operations
in the Middle East to establish in the Dubai
International Financial Centre (DIFC). “This
initiative reflects each agency’s commitment
to co-operation in relation to prudential oversight
and inspections,” Koster stated.
The MoU
adopts the model for information sharing developed
by the Basel Committee on Banking Supervision
and follows similar arrangements the DFSA has
with other significant banking supervisors in
the UK, Germany, France, the US, Singapore,
and China. Last year, the DFSA also signed an
MoU with the Reserve Bank’s fellow financial
regulator, the Financial Services Board of South
Africa.
“In
these recently turbulent times the importance
of effective coordination and cooperation between
banking supervisors cannot be overstated,”
said Koster.
“We
are looking for better ways of working together
to resolve current problems and prevent their
repetition. Agreements such as this will make
a difference,” he concluded.
On October
29, 2009, the DFSA entered into a Memorandum
of Understanding (MoU) with the Securities and
Exchange Board of India (SEBI).
The Securities
and Exchange Board of India was established
in 1992 to regulate the securities markets in
India, to protect the interest of the investors
and to promote the development of, and to regulate
the securities market.
Paul Koster,
Chief Executive of the DFSA announced at the
time that: “As the supervisor of one of
the largest capital markets in the world, SEBI
is an active member of the International Organisation
of Securities Commissions (IOSCO) and acknowledged
as one that is committed to world best practice.
SEBI is, like the DFSA, a signatory to IOSCO’s
multilateral MoU and, as such, has already shown
its ability and willingness to co-operate and
share information to international standards."
"This
bilateral MoU is a significant initiative, recognising
the importance of these arrangements for co-operation
and information sharing between the two regulators.”
He continued:
“There are already a number of branches
of Indian firms operating in the DIFC so this
agreement, which reflects the responsibilities
of both agencies, will enhance information sharing
and co-operation between the DFSA and SEBI as
regulators of these firms. As more financial
services firms join the DIFC from India, this
bilateral relationship will assume increasing
importance as both regulators rely on the quality
of regulatory standards administered in the
other’s jurisdiction.”
“In
the past year, the importance of effective co-ordination
and co-operation between regulators cannot be
overstated. We are looking for better ways of
working together to resolve current problems
and prevent their repetition. Agreements such
as this will make a difference”, Koster
concluded.
In
January 2010, a delegation from the DIFC and
Luxembourg for Finance, the agency responsible
for developing the financial sector in Luxembourg,
signed an MoU to promote cooperation and industry
development across a wide range of areas –
including market access, financial regulations
and infrastructure, training, and industry development
for firms located in the two jurisdictions.
Some
of the MoU’s key areas of focus include
promoting the exchange of information on banking,
financial services and securities legislation
and regulation; sharing trends in financial
services and products; and promoting events
taking place in the two jurisdictions. Other
areas include welcoming delegations from each
jurisdiction, cooperating in financial services
training and facilitating collaboration among
universities located in the two jurisdictions.
Ahmed
Humaid Al Tayer, Governor of the DIFC, said:
“By working with other leading international
financial centers such as Luxembourg, the DIFC
brings business opportunities and a continually
expanding scope of financial products and services
not only to DIFC-based firms, but also to the
UAE and wider region. Luxembourg is a natural
partner for DIFC, with each center’s strengths
complementing those of the other, and opening
many possibilities for cooperation among our
regulators, as well as among the many firms
located in our two jurisdictions.”
The
DFSA has further bolstered regulatory cooperation
between the Emirate and third countries with
the signing of a Memorandum of Understanding
on February 23, 2010, with the Qatar Financial
Centre (QFC) Regulatory Authority.
The
QFC Regulatory Authority was established in
2005 as the independent regulatory body of the
Qatar Financial Centre. It has been established
to regulate firms that conduct financial services
in or from the QFC.
Paul
Koster, Chief Executive of the DFSA said: “The
DFSA is keen to engage with its counterparts
in the GCC and I am particularly pleased to
be signing this MoU with Phillip Thorpe, a distinguished
and experienced figure in the world of financial
regulation. I am also pleased that we now have
a formal arrangement with the QFC Regulatory
Authority, with whom we have much in common.
Both authorities are integrated regulators of
international centres striving to embrace best
practice and seeking to reflect the resolutions
of the international standard-setters. This
initiative should be seen as a mutual willingness
to co-operate and share information to those
standards.”
“In
the past year, the importance of effective co-ordination
and co-operation between regulators cannot be
overstated. We are looking for better ways of
working together to resolve problems and prevent
their repetition. Agreements such as this will
make a difference”, Koster said.
The
DFSA on March 5, 2010, signed an MoU with the
Autorité des marchés financiers
of France (AMF), the French securities regulator.
The signing took place between Paul Koster,
Chief Executive of the DFSA, and Jean-Pierre
Jouyet, Chairman of the AMF.
The
AMF is France’s independent public body
responsible for: safeguarding investments in
financial instruments and in all other savings
and investment vehicles; for ensuring that investors
receive material information; and for maintaining
orderly financial markets. The AMF also lends
its support to financial market regulation at
European and International levels.
Commenting
on the signing of the Memorandum, Koster said:
“The Autorité des marchés
financiers has been a valued member of the International
Organisation of Securities Commissions (IOSCO)
and an active participant in the work of the
Committee of European Securities Regulators,
adopting and harmonizing international standards
in Europe and continuing to establish world-class
standards in the regulation of capital markets.
As such, this MoU is a significant initiative,
recognizing the importance of these arrangements
for co-operation and information sharing between
the two regulators.”
Both
the AMF and the DFSA are signatories to the
IOSCO multilateral MoU, having satisfied the
highest standards of co-operation and assistance
among IOSCO members. Under the latest agreement,
cooperation between the agencies will be further
enhanced on a bilateral level.
Regulatory
cooperation between France and the United Arab
Emirates is already strong, with the signing
of an MoU between the Emirates’ Securities
and Commodities Authority – the UAE’s
federal regulator, and AMF in April 2009, and
between the DFSA and Commission Bancaire - France’s
banking supervisor, signed in August 2008.
“As
a result of this signing, the DFSA now has a
bi-lateral and multilateral MoU network with
90 regulators across the globe,” Koster
concluded.