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Middle East Newsletter2015 - Edition 5The Loyens & Loeff Middle East Newsletter is produced by Loyens & Loeff in Dubai. It isdesigned to alert those (interested in) doing business in the Middle East region to recentinternational tax developments in the region. Such developments are discussed in briefterms and are based on generally available information. The material was assembledbased on information available as at 1 June 2015.

In this edition• Bahrain• Kuwait• Oman• Qatar• Saudi Arabia• United Arab Emirates2

Dear Reader,Through this Middle-East Newsletter we aim to keep you abreast of the recent international tax developments in the GCC.As an internationally oriented tax and corporate law firm, we follow international developments closely. The conclusionof bilateral tax treaties is a topic that is relevant for any multinational when considering its cross-border corporate andinvestment structures and its international tax position.As can be derived from this newsletter, the GCC member states are rapidly expanding their tax treaty networks to facilitateboth inbound and outbound investments. It should be noted that many countries concluding tax treaties with the GCCmember states, may negotiate specific provisions to deal with the ‘no or low tax’ status of the GCC countries. This meansthat it is imperative to meticulously analyze potential tax treaty benefits on a case-by-case basis.Providing specialized international tax advice requires expertise and experience. Our firm’s tax capabilities are highlyregarded by many clients and rewarded by reputable organizations, like Chambers & Partners, the Legal 500 and others.Also in the MENA region our tax capabilities have been recognized. In this respect, we are proud to have been awardedBEST TAX ADVISORY FIRM by MENA FM.About Loyens & LoeffAs you may know, Loyens & Loeff has a longstanding experience of providing high quality tax and legal advice. The firm’shistory dates back to the early 20th century. At present, Loyens & Loeff has 13 offices, which are spread out over AsiaPacific, the Middle East, Europe and the US.Loyens & Loeff is an independent full service firm of civil lawyers, tax advisers and notaries, where civil law and taxservices are provided on an integrated basis. Over 1400 people work for the firm, including 840 civil lawyers, tax advisersand notaries. Our size and range make the firm unique in our home markets Luxembourg, the Netherlands, Belgium andSwitzerland.We hope that the content of this Middle East Newsletter is useful to you. Should it give rise to any questions, please feelfree to contact us or your contact person within Loyens & Loeff.Yours sincerely,Jan Bart SchoberTax partnerTim DopmeijerTax associate3

BahrainBahrain and Portugal concluded a taxtreaty26 May 2015 – Officials of Bahrain and Portugalconcluded a tax treaty on 26 May 2015 in ManamaBahrain. The main treaty characteristics are as follows:• The treaty provides a withholding tax rate for thesource state of 10% of the gross amount of thedividends (if the beneficial owner of the dividend isa company which holds directly at least 25% of thecapital of the company paying the dividend), or 15%in all other cases.• The withholding tax rate on interest payments iscapped at 10% of the gross amount of the payment.• The taxation right that is allocated to the source statein respect of royalty payments is limited to 5% of thegross amount of the royalty.• Capital gains realized on a shareholding by a residentof one of the countries upon a shareholding in theother country are generally taxable in the countrywhere the alienator is a resident, unless the shares itregards derive their value (directly or indirectly) mainly(>50%) from immovable property in the source state(in such case the taxing right is allocated exclusivelyto the source state).• In article 27, the treaty contains a ‘limitation onbenefit’ clause, which provides that (i) the countriesremain allowed to impose their domestic antiavoidanceprovisions under the treaty, (ii) the treatybenefits should not be granted in case the residentis not the beneficial owner of the income, and (iii) thetreaty shall not be applied in case the main purpose(or one of the main purposes) of the treaty is to obtaintreaty benefits.• According to article 29, the provisions of the treatyenter into effect on 1 January of the year following thedate on which the treaty enters into force. The treatywill enter into force after the ratification procedurehas been fulfilled by the two countries.4

Treaty between Bahrain and Cyprussigned, approved by Bahrain and detailsavailable27 April 2015 – In the previous edition of this newsletterwe reported that the Bahraini Council of Ministers hadapproved the tax treaty with Cyprus for signature. Thetreaty was officially concluded on 9 March 2015 inManama, Bahrain. On 27 April 2015 the Cabinet ofMinisters of Bahrain approved the treaty.Treaty negotiations between Bahrainand India22 February 2015 – Following a meeting held in NewDelhi, India, on 22 and 23 February 2015, officials ofBahrain expressed their interest to continue negotiationsto reach a tax treaty between Bahrain and India. Treatynegotiations were initially initialed in 1998. Bahrainand India concluded an agreement on the automaticexchange of information in 2012.We hereafter provide you with the treaty details.• No withholding tax on the payments of dividends,interest and royalties (i.e. host state taxation only).• Capital gains realized by a resident of one of thestates upon the shareholding of a company residentin the other state are taxable only in the state inwhich the alienator is a resident (irrespective of thecomposition of the assets of the company and/orwhere the value of such company is derived from).• The provisions of the treaty will enter into effect on1 January of the year following the year in which theratification procedure has been fulfilled.Treaty between Bahrain and Hungaryratified by Bahrain12 April 2015 – Bahrain ratified the tax treaty withHungary. The tax treaty was concluded on 24 February2013 in Manama, Bahrain. Please refer to the secondedition of this newsletter for the contents of the treaty.Treaty negotiations between Bahrainand Kyrgyzstan16 March 2015 – According to an official update bythe government of Kyrgyzstan, officials of Bahrain andKyrgyzstan have entered into negotiations to come to atax treaty between the two countries. More information(such as treaty contents) has not yet been made public.We will inform you accordingly when there are anydevelopments in this respect.KuwaitIraqi Minister of Finance authorized toenter into treaty negotiations with Kuwait31 March 2015 – The Iraqi Council of Ministersauthorized its Minister of Finance to negotiate and signan income and capital tax treaty with Kuwait. Once moreinformation is available, we will report in future editions ofthis newsletter.Kuwait considers introduction of incometax on local companies18 March 2015 – It was reported by IBFD that theMinister of Commerce and Industry of Kuwait is currentlydiscussing the introduction of an income tax on localcompanies in Kuwait with the International MonetaryFund (IMF). Presently, only foreign companies are subjectto income tax. Local companies that are (partially) ownedby foreign companies are subject to tax on the share ofthe foreign company.It seems that the decrease in international oil prices(resulting in a drop in Kuwait’s revenues from oil of aboutUSD 20 billion) has accelerated the discussion on thismatter. If it comes to a proposal, once agreed by theCabinet, it requires further approval from Parliament.5

OmanOman – Switzerland tax treaty concluded22 May 2015 – On 22 May 2015, officials of Oman andSwitzerland concluded a tax treaty with each other (inSugiez, Switzerland). The most notable treaty provisionsare as follows:• The maximum dividend withholding tax rate ondividend distributions amounts to 5% of the grossamount of the dividend if the beneficial owner is acompany (other than a partnership) which holdsdirectly at least 10% of the capital in the distributingcompany, or 15% in other cases. Certain (governmentlinked) institutions and pensions funds are exemptfrom dividend withholding tax.• The maximum interest withholding tax rate on interestpayments amounts to 5% of the gross amount of theinterest. Certain interest payments are exempt frominterest withholding tax (among which interest onbank loans and interest on intercompany loans).• The maximum royalties withholding tax rate onroyalty payments amounts to 8% of the gross amountof the royalty. The treaty also contains a most favorednation (MFN) clause in respect of the royalty article(i.e. if Oman would conclude a tax treaty or similararrangement with a third state in which it agrees ona lower withholding tax rate for royalties, such lowerwithholding tax rate would apply mutatis mutandis tothe Oman – Switzerland tax treaty).• Capital gains on shares are in principle taxableonly in the state in which the alienator is a resident.However, the taxing right is exclusively allocated tothe source state in case the assets of the companywhich it regards consists, directly or indirectly, formore than 50% of immovable property situated inthat country.Oman – Spain tax treaty approved bySpanish Congress and Spanish Senate30 April 2015 – Further to our news report in the thirdedition of this newsletter, the Spanish congress hasapproved the tax treaty between Oman and Spain on30 April 2015. Thereafter, on 27 May 2015, the SpanishSenate approved the treaty. For an overview of the treatycontents, kindly refer to the third edition of this newsletter.Oman – Portugal tax treaty concluded inLisbon27 April 2015 – Officials of Oman and Portugal concludeda tax treaty between the countries. This was done on27 April 2015 in Lisbon, Portugal. A copy of the treatycontents has not yet been made public. Treaty details willbe reported once available.Georgia approved treaty negotiationswith Oman2 April 2015 – The Government of Georgia authorizedto enter into treaty negotiations with Oman. This wouldbe the first tax treaty between the countries. Details havenot yet been made public and will be reported in thisnewsletter once available.Oman – Lithuania tax treaty negotiationshave commenced3 February 2015 – Following a meeting held inMuscat, Oman on 3 February 2015, it was reported thatnegotiations to come to a tax treaty between Oman andLithuania have commenced. Developments on this topicwill be reported once available.QatarQatar – Peru tax treaty negotiationsupdate28 May 2015 – It has been reported by IBFD that a thirdround of treaty negotiations was scheduled to reach a taxtreaty between Qatar and Peru (in Doha, Qatar on 27 and28 May 2015). Reportedly, the previous round of treatynegotiations took place in Lima, Peru. More informationis not yet public and will be reported once available.Qatar – Kyrgyzstan tax treaty enteredinto force26 May 2015 – Following the ratification procedure by bothcountries, the tax treaty between Qatar and Kyrgyzstanentered into force on 4 May 2015. Consequently, theprovisions of the treaty can be benefitted from as of1 January 2016.7

Qatar – Kenya tax treaty approved forratification by Qatar25 May 2015 – Qatar’s Emir approved the Qatar – Kenyatax treaty for ratification. The treaty will enter into forceonce the ratification procedure has been fulfilled by bothcountries. The provisions of the treaty will enter intoeffect on 1 January of the year following the year in whichthe ratification procedure is fulfilled. The main treatycharacteristics can be summarized as follows:• The maximum withholding tax rate on dividenddistributions amounts to 5% of the gross amount of thedividends if the beneficial owner is a company (otherthan a partnership) which holds directly or indirectlyat least 10% of the capital in the company payingthe dividends, or 10% of the gross amount of thedividends in all other cases. However, distributions ofprofits to the other country, its political subdivisions,local authorities, statutory bodies, the Central Bankor any entity wholly owned directly or indirectly by thatother country, including, in the case of Qatar, QatarInvestment Authority and Qatar Holding are fullyexempt from dividend withholding tax.• The maximum withholding tax rate on interestpayments amounts to 10% of the gross amount ofthe interest. However, if the beneficial owner of theinterest is the other country, its political subdivisions,local authorities, statutory bodies, Central Bankor any entity wholly owned directly or indirectly bythat other country, including, in the case of Qatar,Qatar Investment Authority and Qatar Holding, thenthe interest payment is fully exempt from interestwithholding tax.• The maximum withholding tax rate on royaltypayments amounts to 10% of the gross amount ofthe royalty.• Capital gains on shares are taxable in the state inwhich the alienator is a resident.• Article 28 contains a general anti-abuse provisionwhich states that parties shall not be entitled to thebenefits of the treaty if its affairs were arranged insuch a manner as if it was the main purpose or one ofthe main purposes to take the benefits of the treaty.Qatar – Fiji tax treaty approved forratification10 May 2015 – Qatar’s Emir approved the Qatar – Fijitax treaty for ratification. The treaty will enter into forceonce the ratification procedure has been fulfilled and theprovisions of the treaty enter into effect as of 1 January ofthe year following the entry info force date.Qatar – Gambia tax treaty approved forratification10 May 2015 – Qatar’s Emir approved the Qatar –Gambia tax treaty for ratification. The treaty will enter intoforce once the ratification procedure has been fulfilled(and the provisions of the treaty enter into effect as of1 January of the year following the entry into force date).For an overview of the most notable treaty provisions,kindly refer to the previous edition of this newsletter.Qatar – Latvia tax treaty approved forratification10 May 2015 – Qatar’s Emir approved the Qatar– Latvia tax treaty for ratification. As set out in ourprevious newsletter, the treaty was ratified by Latvia on11 December 2014. The treaty will enter into force whenthe ratification instruments have been exchanged. It canexpected that the ratification procedure will be fulfilledlater this year. If that would be the case, the provisionsof the treaty can be applied as of 1 January 2016. Foran overview of the most notable treaty provisions, kindlyrefer to the previous edition of this newsletter.Qatar – Ecuador tax treaty ratified byQatar14 April 2015 – Qatar’s Emir issued an instrumentratifying the tax treaty between Qatar and Ecuador, whichwas concluded between the countries on 22 October2014 (as communicated in the fourth edition of thisnewsletter). The treaty, which is not yet in force and ineffect, contains the following main characteristics:• The maximum withholding tax rate on dividenddistributions amounts to 5% of the gross amount ofthe dividend if the beneficial owner is a company8

which holds at least 10 per cent of the voting stockof the company paying the dividend, and to 10%of the gross amount of the dividend in other cases.However, dividend distributions to governments, apolitical subdivision or a local government and tovarious specified (government-linked) institutions areexempt from dividend withholding tax.• The maximum withholding tax rate on interestpayments amounts to 10% of the gross amount ofthe interest. However, interest payments are exemptif paid to the government or government-ownedinstitutions. Article 11, paragraph 4 provides for a listof qualifying government owned institutions for thepurpose of this exemption.• The maximum withholding tax rate on royaltypayments amounts to 10% of the gross amount ofthe royalty.• Capital gains realized on shares are generally taxablein the country in which the alienator is a resident.However, such gains are exclusively taxable in thesource state (e.g. the state in which the companywhose shares are alienated is a resident) in case thevalue of the shares of that company derive, directly orindirectly, at least 50% of their value from immovableproperty situated in that country.• Article 25 of the treaty provides for an anti-abuserule. This clause provides that no treaty benefits areavailable in case it was the main purpose or one ofthe main purposes of a resident to obtain the benefitsof the treaty.Qatar – Gabon tax treaty negotiations31 March 2015 – It has been reported that officials ofQatar and Gabon entered into treaty negotiations tocome to a tax treaty between the countries. A first roundof treaty negotiations was held in Doha, Qatar on 30 and31 March 2015. More details are not yet public and will bereported once available.Qatar – Nigeria tax treaty authorized forsignature by Qatar25 March 2015 – The cabinet of Qatar authorized thesignature of the tax treaty between Qatar and Nigeria. Acopy of the treaty text is not yet available. Details of thetreaty will be reported once available.Qatar – Swaziland tax treaty negotiations6 March 2015 – It has been reported that officials ofQatar and Swaziland entered into treaty negotiations toreach a tax treaty between the countries. A first round oftreaty negotiations was held in Doha, Qatar from 16 to18 March, last. More details are not yet public and will bereported once available.9

Qatar – South Africa tax treaty concluded6 March 2015 – Officials of Qatar and South Africaagreed and concluded a tax treaty in Pretoria, SouthAfrica. The treaty, which is not yet in force and in effect,contains the following main characteristics:• The maximum dividend withholding tax rate ondividend distributions amounts to 5% of the grossamount of the dividend if the beneficial owner is acompany (other than a partnership) which holds atleast 10 per cent of the capital of the company payingthe dividends, or 10% of the gross amount of thedividend in all other cases.• The maximum interest withholding tax rate on interestpayments amounts to 10% of the gross amount ofthe interest. However, interest payments are exemptif paid to a qualifying (mainly government-linked)creditor or if the interest is paid on a debt instrumentlisted on a recognized stock exchange.• The maximum royalty withholding tax rate on royaltypayments is 5% of the gross amount of the royalty.• The dividend, interest and royalty article in the treatyeach contain an anti-abuse provision in the form ofa main purpose test which states that the respectivearticle shall not apply if it was the main purpose orone of the main purposes to take advantage of theaforesaid article.• Capital gains on shares are generally taxable in thecountry in which the alienator is a resident. However,the taxing right in respect of capital gains on sharesis allocated to the source state in case the alienationregards shares of a company the property of whichconsists directly or indirectly wholly or mainly ofimmovable property situated in that country, unlessthe immovable property is used for the purposes ofcarrying on an industrial or manufacturing activity (i.e.taxing right allocated to host country).Tax treaty between Qatar and Japanconcluded in Tokyo20 February 2015 – A new tax treaty was concludedbetween Qatar and Japan in Tokyo, Japan. The treatywill replace the 2009 transport tax treaty (which has amore limited scope). The new treaty between Qatar andJapan provides for the following details:• The maximum dividend withholding tax rate ondividend distributions amounts to 5% of the grossamount of the dividend if the beneficial owner is acompany which, at the moment of the distribution andat least 6 months uninterruptedly prior thereto, has atleast 10% of the voting power or owns directly at least10% of the capital in the distributing company, or 10%in other cases. The reduced dividend withholding taxrate of 5% is not applicable in the case of dividendspaid by a company which is entitled to a deductionfor dividends paid to its beneficiaries in computingits taxable income in Japan. However, this exceptionis not triggered in specific circumstances whereby aQatari government-owned company makes use of anintermediary company (reference is made to protocolclause 5).• The maximum interest withholding tax rate on interestpayments amounts to 10% of the gross amount ofthe interest. Certain interest payments (e.g. to mainlygovernment linked institutions) are exempt frominterest withholding tax. Protocol clause 6 providesfor a list of qualifying “institutions wholly owned by theGovernment” that could benefit from the exemption ofinterest withholding tax.• The maximum royalty withholding tax rate on royaltypayments amounts to 5% of the gross amount of theinterest.• Capital gains on shares are generally taxable in thestate in which the alienator is a resident. However,gains realized on interests in a company, partnershipor trusts deriving at least 50% of their value of itsassets directly or indirectly from immovable propertymay be taxable in the state in which such immovableproperty is situated, unless the relevant class of theshares or the interests is traded on a recognizedstock exchange and the resident and persons relatedor connected to that resident own in the aggregate5 per cent or less of that class of the shares or theinterests. The protocol to the treaty provides for a listof qualifying stock exchanges (protocol clause 7).11

• Protocol clause 11 provides for a general anti-abuseprovision which reads as follows: ‘It is understoodthat no relief shall be available under the Agreementif the main purpose or one of the main purposesof any person concerned with the creation orassignment of any shares, debt-claims or other rightsor properties in respect of which income arises wasto take advantage of the Agreement by means of thatcreation or assignment.’Qatar – Bangladesh tax treaty authorizedfor signature by Qatar4 February 2015 – The Cabinet of Qatar authorizedthe signature of the tax treaty between Qatar andBangladesh. The contents of the treaty are not public yetand will be reported once available.Saudi ArabiaNew rules for foreign investors aiming toaccess and trade in KSA stock markets1 June 2015 – On 4 May 2015, the Saudi Capital MarketAuthority issued rules allowing foreign investors to enterand trade stocks on the Saudi stock market. According toIBFD, these rules are as follows:Foreign investors concerned by this measure have tomeet a number of requirements, including the following:• to be a bank, a brokerage or securities firm, a fundmanager or an insurance company;• to be licensed or subject to regulatory oversightaccording to regulatory and monitoring standardsthat are similar to those applied by the authority;• to have in principle at least USD 5 billion of assetsunder management;• to have carried on securities-related activities for atleast 5 years.12

Access to the Saudi stock market remains subject to thefollowing limitations:• individually, each qualified foreign investor may notown more than 5% of the issued shares of any listedcompany;• for any listed company, qualified foreign investorsmay not own in the aggregate more than 20% of theissued shares;• in the aggregate, qualified foreign investors may notown more than 10% of the market value of issuedshares of all listed companies; and• foreign ownership, including indirect ownershipthrough the currently permissible “interest underswaps”, in all listed companies must not exceed 49%of the issued shares.Under the Saudi tax regulations, capital gains on thealienation of listed shares are exempt from tax. Dividendspaid to non-residents with no permanent establishment inSaudi Arabia are subject to a 5% withholding tax (subjectto reductions under tax treaties if applicable).Saudi Arabia – Azerbaijan tax treatyentered into force30 May 2015 – Following the approval by the Cabinetof Saudi Arabia on 23 February and the completion ofthe ratification procedure, the tax treaty between SaudiArabia and Azerbaijan entered into force as per 30 May2015. According to article 29 of the treaty, its provisionscan be applied as from 1 January 2016. For a detailedoverview of the main characteristics of the treaty, we referto the previous edition of this newsletter.Saudi Arabia – Georgia tax treatyinitialed21 May 2015 – Saudi Arabia and Georgia initialed atax treaty between the countries. Further details will bereported once available.Saudi Arabia – Sweden tax treatynegotiations update21 May 2015 – The Swedish tax authorities reported thatthe treaty negotiations with Saudi Arabia are still ongoing.More details are not known yet and will be reported onceavailable.Saudi Arabia – Hong Kong tax treatynegotiations update8 May 2015 – The Hong Kong tax authorities published anupdate stating that the third round of treaty negotiationsbetween Saudi Arabia and Hong Kong were scheduled totake place from 12 to 14 May 2015. More details are notknown yet and will be reported once available.Saudi Arabia – Hungary tax treatyentered into force1 May 2015 – The tax treaty between Saudi Arabia andHungary entered into force as per 1 May 2015. Accordingto article 29 of the treaty, its provisions can be appliedas from 1 January 2016. For a detailed overview of themain characteristics of the treaty, we refer to the previousedition of this newsletter.Saudi Arabia expressed intentions toconclude tax treaty with Lithuania26 April 2015 – Officials of Saudi Arabia and Lithuaniahave met each other in Jeddah, Saudi Arabia on 26 April2015. Following this meeting, it was expressed by SaudiArabia that it is their intention to negotiate and concludea tax treaty with Lithuania.Saudi Arabia – Kyrgyzstan tax treatyapproved by Saudi Arabia andKyrgyzstan23 April 2015 – The tax treaty between Saudi Arabiaand Kyrgyzstan was approved by the government ofKyrgyzstan on 23 April 2015. On the Saudi Arabian side,the treaty was approved by the Cabinet of Saudi Arabianon 7 April 2015. The treaty will enter into force once theratification procedure has been fulfilled and developmentin this respect will be reported once available.Saudi Arabia and Jordan initialed a taxtreaty22 April 2015 – After a successful fourth round of treatynegotiations (held from 19 to 22 April 2015 in Amman,Jordan), Jordan and Saudi Arabia initialed a tax treaty.More details are not public yet but will be reported onceavailable.13

Saudi Arabia and Guernsey tax treatynegotiations have commenced21 April 2015 – According to an official update publishedby the Guernsey tax authorities, tax treaty negotiationsbetween Saudi Arabia and Guernsey have commenced.At this stage, no details are public but will be reportedonce available.Saudi Arabia – Morocco tax treatyconcluded14 April 2015 – On 14 April 2015, officials of SaudiArabia and Morocco concluded a tax treaty between thecountries in Rabat, Morocco. The treaty will enter intoforce once the ratification procedure has been fulfilled.Reportedly, the main characteristics of the treaty are asfollows:• Maximum withholding tax of 10% on dividenddistributions, reduced to 5% if the beneficial owneris a company which directly owns at least 10% of thecapital of the company paying the dividend.• Maximum withholding tax of 10% on interestpayments. However, an exception applies to interestpayments made to the government, local authorities,the central bank of the other contracting state or anyfinancial institution wholly owned by the governmentof the other contracting state.• Maximum withholding tax of 10% on royalty payments.• Capital gains on the disposal of shares of a companyresident in one contracting state may be taxed inthat state. In addition, the treaty does not include aprovision on the taxation of capital gains from thedisposal of real estate companies.Saudi Arabia – Portugal tax treatyconcluded8 April 2015 – It has been reported that officials ofPortugal and Saudi Arabia concluded a tax treaty inLisbon, Portugal on 8 April 2015. As far as we are aware,the treaty contents have not been made public. Hence,these will be reported in this newsletter once available.Saudi Arabia – Sudan tax treaty initialed25 March 2015 – On 25 March 2015, Saudi Arabia andSudan initialed a tax treaty in Riyadh, Saudi Arabia. It wasreported that it is expected that the treaty will be signedshortly. Further details, once available, will be reported infuture editions of this newsletter.United Arab EmiratesUAE – Argentina tax treaty talks tocontinue26 May 2015 – Following a meeting held in Abu Dhabi,UAE, on 26 May 2015, the UAE and Argentina agreedto continue treaty negotiations to come to a tax treatybetween the countries. Treaty negotiations initially startedin 2006 but did not yet result in a tax treaty between thecountries. Further treaty developments in this respect willbe reported once available.Intentions mutually expressed to cometo UAE – Mongolia tax treaty20 May 2015 – Following a meeting between officials ofthe UAE and Mongolia (held in Dubai on 20 and 21 May2015), the countries have mutually expressed theirintentions to come to a tax treaty. Tax treaty negotiationsare expected to commence soon. Further details aboutthese developments will be reported once available.UAE – Hong Kong tax treaty publishedin official gazette by Hong Kong18 May 2015 – The tax treaty that was concluded by theUAE and Hong Kong on 11 December 2014 has beenpublished by Hong Kong in the official gazette on 15 May2015 and was scheduled at the Legislative Council on20 May 2015 for negative vetting. We reported aboutthe contents of this tax treaty in the previous edition ofthis newsletter. The treaty will not enter into force beforethe ratification procedures have been fulfilled by bothcountries.15

UAE – UK tax treaty update13 May 2015 – The Minister of State for FinancialAffairs of the UAE, HE Obaid Humaid Al Tayer receivedthe UK Ambassador to the UAE, Mr Philip Parhamat the Ministry of Finance in Abu Dhabi. The bilateraleconomic relations between the countries and the latestdevelopments regarding the rounds of negotiations onsigning double taxation avoidance agreement werediscussed. It was reported that the countries held a fifthround of negotiations in January 2015 on signing a taxtreaty. Further treaty developments will be reported onceavailable.UAE – Poland protocol to the tax treatyentered into force1 May 2015 – As from 1 May 2015, the protocol to thetax treaty between the UAE and Poland entered intoforce. Consequently, the provisions of the protocol canbe applied as from 1 January 2016. The main elementsare as follows:• In article 12, the definition of a “royalty” has beenreplaced by the following definition: ‘The term“royalties” as used in this Article means payments ofany kind received as a consideration for the use of,or the right to use, any copyright, patent, trade mark,design or model, plan, secret formula or process,or for the use of, or the right to use any industrial,commercial, or scientific equipment or for information(knowhow) concerning industrial, commercial orscientific experience; this term also means paymentsof any kind received as a consideration for the use of,or the right to use, any copyright on cinematographfilms, and films or tapes for radio or televisionbroadcasting.‘• The provision dealing with capital gains has beenamended such that a taxation right is granted for thesource state with respect to shares which, directlyor indirectly, principally derive their value from realproperty located in that source state.• After article 23 of the treaty, a new article 23a whichcontains a ‘limitation of benefits’ clause is beingintroduced. The new articles reads as follows:‘Benefits provided for by this Agreement shall not beavailable where it might be considered that the mainpurpose or one of the main purposes for entering intoarrangements has been to obtain these benefits thatwould not be otherwise available. The cases of legalentities not having bonafide business activities shallbe covered by this Article’.• Article 24 (methods of elimination of double taxation)has been amended such that the exemption methodapplied by Poland for dividends, interest androyalties, is replaced by a credit method to avoiddouble taxation. Finally, the exchange of informationclause (article 27) has been literally brought in linewith the relevant provision in the OECD Model TaxConvention.UAE – Kyrgyzstan tax treaty approvedby Government of Kyrgyzstan23 April 2015 – The Government of Kyrgyzstan approvedthe tax treaty between the UAE and Kyrgyzstan. As a nextstep, the tax treaty was sent to Kyrgyzstan’s Parliamentfor ratification. More information on the development ofthis treaty will be reported once available.New treaty between UAE and Romaniaauthorized for signature by Romaniangovernment22 April 2015 – The Romanian government authorizedthe signing of a tax treaty that has recently beenconcluded with the UAE. Once in force, the new taxtreaty will replace the current tax treaty in force betweenthe UAE and Romania (which dates back from 1993).The treaty details of the new tax treaty have not yet beenmade public, but will be reported once available.UAE ratified the UAE – Albania tax treaty15 April 2015 – By way of Federal Decree (No. 37/2015),as published in Official Gazette number 578, the UAEratified the tax treaty with Albania. The ratification fromthe side of Albania was fulfilled on 19 June 2014. Hence,the treaty can be expected to enter into force later thisyear.Certain main characteristics of the treaty are as follows:• Individuals being resident in the UAE withoutpossessing the UAE nationality (e.g. Albanianexpats) are not entitled to treaty benefits as they donot qualify under article 4 as a resident of the UAE.16

• The maximum dividend withholding tax rate underthe treaty amounts to (a) 0% of the gross amountof the dividends if the beneficial owner is the othercontracting state or any governmental institution or aspecified institution, (b) 5% of the gross amount of thedividends if the beneficial owner is a company (otherthan a partnership) which holds directly at least 10%of the capital in the company paying the dividends,or (c) 10% of the gross amount of the dividends in allother cases. According to the protocol to the treaty,if shares are sold by the shareholder to the issuerin connection with the liquidation of such companyor the reduction of paid up capital, the differencebetween the selling price and the par value shall betreated as a dividend distribution (and not as a capitalgain).• The treaty does not provide for a withholding tax oninterest payments (i.e. taxable only in the creditor/recipient state).• The maximum royalty withholding tax rate under thetreaty amounts to 5% on the gross amount of theroyalty.• Capital gains on shares are taxable only in the statein which the alienator is a resident, unless it regardsshares deriving more than 50% of their value directlyor indirectly from immovable property situated in theother country (i.e. source state exclusive taxing right).Tax treaty between UAE and Ethiopiaconcluded12 April 2015 – The UAE and Ethiopia concluded a taxtreaty with each other. The tax treaty contents are notpublic yet and will be reported by us once available.Details of amendments to Luxembourg– UAE tax treaty published2 April 2015 – The Luxembourg Council of Ministersapproved the protocol to the Luxembourg – UAE taxtreaty. The protocol was concluded between the countriesin Abu Dhabi on 26 October 2014. The main amendmentsprovided by the protocol can be summarized as follows.1. The protocol introduces additional exemptions fromLuxembourg income tax and corporation tax inrespect of the following items of income:a. ncome received by a Luxembourg individual orcompany from its permanent establishment inthe UAE that is not subject to tax in the UAE,provided the permanent establishment is active inagriculture, industry, infrastructure or tourism;17

. dividends received by a Luxembourg companyfrom a UAE subsidiary, provided the Luxembourgcompany has directly held at least 10 per cent ofthe capital of the subsidiary since the beginning ofthe accounting year, andi. the subsidiary is subject in the UAE to anincome tax corresponding to the Luxembourgcorporation tax; orii. the subsidiary is exempt from tax, or taxed ata reduced rate in the UAE, but the dividendis derived out of profits from activities inagriculture, industry, infrastructure or tourismin the UAE.2. The protocol introduces an exemption fromLuxembourg net wealth tax with respect to aparticipation in a UAE company, if the conditions asset out under 1, letter b, are satisfied.3. The protocol amends the capital gains article of thetreaty. This amendment aims to clarify that capitalgains derived from the disposal of shares in listedcompanies are taxable only in the state of residenceof the seller.5. The protocol updates the list of qualifying financialinstitutions for both countries. Like states, localgovernments and local authorities, these specifiedfinancial institutions benefit from a 0% dividendwithholding tax rate under the treaty, provided theyare the beneficial owner of the dividend.The protocol shall enter into effect as of 1 January of theyear following the entry into force date of the protocol.The protocol will enter into force when both countrieshave exchanged the ratification instruments throughdiplomatic channels with each other.Tax treaty between UAE and ComorosIslands concluded26 March 2015 – The UAE and the Comoros Islandsconcluded a tax treaty and an investment protectionagreement with each other (in Sharm el-Sheikh, Egypt).The tax treaty contents are not public yet.UAE – Liechtenstein tax treaty initialed27 February 2015 – On 27 February 2015, Liechtensteinand the UAE initialed a tax treaty. More information is notyet public but will be reported once available.4. The protocol broadens the scope of the exchangeof information under the treaty. In line with OECDdevelopments, it will cover information that is‘foreseeable relevant’ to carry out the provisions ofthe treaty or to the administration or enforcementof the domestics laws concerning certain taxes orlevies. A provision will be introduced that stipulatesthat a contracting state, which is requested forinformation, is obliged to use its information gatheringmeasures to obtain the requested information, eventhough that state may not need that information forits own tax purposes. It has also been agreed that inno case a contracting state is permitted to decline tosupply information because the information is held bya bank, other financial institution, nominee or personacting in an agency or a fiduciary capacity or becauseit relates to ownership interest in a person.18

About Loyens & LoeffContactAt the heart of the legal and tax worldIndependent, international and specialised in Dutch, Belgian,Luxembourg and Swiss law. With offices in the Netherlands,Belgium, Luxembourg and Switzerland and branches in themost important global financial centres, Loyens & Loeff iscompletely at the heart of the legal and tax world.Your interest is our priorityWith a wealth of knowledge and experience gathered over theyears, we have been active in the legal and tax environmentsince the beginning of the 20th century. You can count onus to provide personal, tailored advice worldwide. Our 900advisers closely follow all developments and act quickly toturn them to your advantage. Directly, proactively and alwayswith your best interests as our priority. We combine ourknowledge and experience to create high-quality, creativeand efficient solutions. That way we can resolve your issueswith an innovative and pragmatic approach.Integrated and connectedWithin Loyens & Loeff, our legal and tax advisers work underthe same roof. That means that lawyers, tax advisers andcivil law notaries form cohesive teams and all challenges areapproached from various angles. Integrated and connected.We view matters from all perspectives that come with a fullservicepractice. We always consider the full range of optionsfor your situation, which offers you numerous advantages.Loyens & LoeffP.O. Box 506647, DubaiDubai International Financial Centre (DIFC), Gate Village,Building #10, Level 2, Office 202, DubaiUnited Arab EmiratesT +971 4 437 27 00F +971 4 425 56 73Jan Bart SchoberT +971 4 437 27 07M +971 56 179 67 76E jan.bart.schober@loyensloeff.comTim DopmeijerT +971 4 437 27 12M +971 502 403 453E tim.dopmeijer@loyensloeff.comwww.loyensloeff.comAlthough this publication has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons andpractices trading under the name ‘Loyens & Loeff’, cannot accept any liability for the consequences of making use of this issue withouttheir cooperation. The information provided is intended as general information and cannot be regarded as advice.19

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