DUBAI: DOUBLE TAX TREATIES

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- DUBAI DOUBLE TAX TREATIES
- DUBAI OTHER INTERNATIONAL AGREEMENTS

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.