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
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