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  • Service: Tax
  • Type: Business and industry issue
  • Date: 5/15/2014

UAE – residency certificates, trade agreements and tax treaties 

In recent months, the United Arab Emirates (UAE) has seen new developments regarding tax residency certificates for free trade zone entities and newly signed or ratified trade agreements and tax treaties. Further, the UAE government is reportedly set to ratify a new investor-friendly companies law.

Free trade zones – tax residency certificates

Entities in free trade zones are provided tax residency certificates only on a case-by-case basis subject to satisfying certain conditions. Currently, there is a 3-year requirement for the company in a free zone to be eligible to apply for a TRC. Excepted from this rule are entities in free trade zones that have signed a memorandum of understanding (MOU) with the Ministry of Finance. The MOU commits the zone to require certain substance from its companies.


Currently, the Ministry has signed MOUs with Jebel Ali Free Zone, Dubai International Financial City and Fujairah Free Zone. Recently, another key free trade zone, the Dubai Multi Commodities Centre, entered into this MOU, and several more free trade zones are in discussions with the Ministry. The UAE Central Bank, which governs the banks in the UAE, has also entered into this MOU. Given the major presence of foreign entities and investments within free trade zones, this development is expected to ease the process for obtaining tax residency certificates for many taxpayers in the UAE.

Bilateral trade agreement – The Netherlands

The UAE expanded its bilateral trading and investment protection agreement network by signing an agreement to protect and encourage investments with the Netherlands in December 2013. The UAE now has such agreements with 45 countries.

UAE tax treaties – Panama and Slovenia

A new UAE tax treaty with Panama entered into force on 23 October 2013 (applying from 1 January 2014), and UAE signed a new tax treaty with Slovenia on 12 October 2013.


Key features of the UAE–Panama tax treaty are as follows:


  • The treaty specifically excludes the taxation of income derived from hydrocarbons.
  • The term resident as per Article 5 for the UAE includes incorporated entities or recognized persons under the laws of the UAE. It also includes any person other than an individual owned or controlled directly or indirectly by that state (i.e. UAE) or any political subdivision or local government or local authority.

The UAE–Slovenia tax treaty (which is not yet in force) defines ’resident‘ as “a company which is incorporated and has its place of effective management in the UAE”. 1


Given the current tax environment in the UAE, the definitions in these two treaties will be helpful for claiming treaty benefits. The intent is clearly to ensure incorporated entities in the UAE can claim the relevant treaty benefits, as opposed to satisfying the condition whether the UAE company is ’subject to tax‘, as required by some other treaties.

Update – new UAE Companies Law

A media report2 suggests that a new UAE companies law is set to be ratified. The new law would provide various provisions and incentives to attract foreign investment to the UAE. However, the UAE government has not yet issued any formal notification to this effect.



1See Article 5.

2UAE may soon approve new companies law’, Reuters, 24 March 2014.

 

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