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  • Service: Tax
  • Type: Business and industry issue
  • Date: 7/23/2014

United Arab Emirates – new FATCA IGA with US, tax treaty with Mexico 

The United Arab Emirates (UAE) recently signed a new Intergovernmental Agreement (IGA) with the US and announced entry into force its new tax treaty with Mexico. Both of these agreements could significantly affect foreign investors in the country.

FATCA IGA with US agreed in principle

At the end of May 2014, the UAE reached an agreement in principle with the US to put in place a model 1 IGA for ensuring UAE-registered financial institutions comply with the US Foreign Account Tax Compliance Act (FATCA).

The US consented to this status for the UAE on 23 May 2014, and so foreign financial institutions located in the UAE will be treated as having an agreement to comply with the requirements of FATCA by the end of 2014. With the FATCA registration deadline for UAE-based institutions extended to the end of 2014, these institutions now have more time to comply with the FATCA requirements.

New UAE-Mexico treaty

The UAE and Mexico signed a new tax treaty on 20 November 2012, which will enter into force from 1 January 2015. The treaty sets a 10 percent withholding tax rate for interest and royalties and specifies that dividends are only taxable in the state of residence.

The treaty also provides for the taxation of capital gains on share transfers in the state where the company whose shares are being transferred is situated.

The treaty contains a limitation on benefits clause that could affect a person’s entitlement to treaty benefits. Under this clause, a UAE resident who obtains income from Mexico will have access to the benefits described in articles 8, 10, 11, 12 and 13 only if such person is:


  • the UAE
  • a governmental institution of the UAE
  • an individual
  • a company that can prove that at least 51 percent of the participation on its benefits is held directly or indirectly and controlled by the UAE and/or a UAE resident individual.

Thus treaty access is restricted to mainland UAE companies or companies that are at least 51 percent owned by UAE nationals, which excludes free trade zone companies that are wholly owned by foreign nationals/companies.

 

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