Double Taxation Agreements
In the framework of global strategic partnerships and to enhance competitiveness of the United Arab Emirates, the Ministry is working on expanding its Double Taxation Agreements (DTA) and Bilateral Investments Treaties (BIT) network , where it concluded 193 DTAs and BITs, with the purpose of exempting or reducing taxes on investment and profits from direct and indirect taxes in addition to protecting those investments of all kinds of non-commercial risks to ensure that those profits can be transferred in a free convertible currency.
Avoidance of Double taxation
Double taxation is defined when similar taxes are imposed in two countries on the same tax payer on the same tax base, which harmfully affects the exchange of goods, services and capital and technology transfer and trade across the border.
Public and private companies, investment firms, air transport firms and other companies operating in the UAE, as well as residents, benefit from Avoidance of Double Taxation Agreements (DTA). With the purpose of promoting its development goals, the UAE concluded 137 DTA to with most of its trade partners.
The purpose of avoidance of double taxation agreements
- Promote the development goals of the UAE and diversify its sources of national income
- Eliminating double taxation, additional taxes and indirect taxes and fiscal evasion
- Remove the difficulties relating to cross-border trade and investment flows
- Offer full protection to tax payers from double taxation, whether direct or indirect and avoid obstructing the free flow of trade and investment and promoting the development goals, in addition to diversify sources of national income and increase the size of investments inflows
- Take into consideration the taxation issues and the global changes in the economic, financial sectors, and the new financial instruments and the mechanisms of transfer pricing
- Encourage the exchange of goods, services and capital movements
Exchange of Information for tax purposes
The Global Forum on Transparency Agreements for exchanging tax information
Objectives and Achievements
Based on the Ministry of Finance (MoF) belief that agreements on exchanging tax information play a key role in achieving transparency, justice and the protection of the national economy, MoF is keen to grow its network of such agreements. These agreements also strengthen the stature of the UAE as a global financial and trade hub in the international arena, as the provisions of the agreements demanded by the Global Forum on Transparency provide a legal framework for the tax authorities to practice cross-border cooperation without violating the sovereignty of other states or the rights of taxpayers
Since its establishment in 2009 by the G20 and OECD, the Global Forum on Transparency and Exchange of Information for Tax Purposes has become the key international body working on the implementation of international standards for information exchange. This was due to the fact that tax evasion had emerged as a real threat to governments’ revenues in the light of globalisation, which offers economic benefits associated with risks.
To avoid these risks, there was an urgent need to strengthen international cooperation in the field of information exchange, so that tax evaders would be unable to hide their wealth and assets any longer. In order for countries to be able to exchange such information, a legal reference had to be found by concluding bilateral agreements on the avoidance of double taxation.
Strengthening international cooperation
Based on the Ministerial Council for Services Resolution No. (4/454/خ (of 2010, the UAE joined the Global Forum. The forum evaluates country performance and their commitment to the standards of transparency and exchange of information by the Peer Review Committee through two phases:
This phase includes evaluating laws and frameworks governing the process of exchanging information.
This phase includes practical implementation of the exchange of information and transparency principles according to international standards, and evaluating to which extent laws conform with guiding criteria of the forum.
Forum membership is open to all countries. However, countries are divided into three groups depending on the extent of their commitment to transparency standards:
- Countries committed to implementing the standards/White list.
- Countries committed to implementing the standards but in need of technical assistance/Grey list.
- Countries not committed to implementing the standards/Black list.
Failure to commit to transparency standards will deprive countries from the investments of the G20 Industrial Nations.
The UAE joins the forum
The Ministry of Finance signed a Memorandum of Understanding (MoU) with OECD to build a partnership with regard to taxation matters, whereby the UAE has become a training hub for MENA for the exchange of information and building a qualified and active network of tax experts among the countries of the region. The UAE joined the Global Forum on Transparency in 2010 and participated in its various meetings.
The UAE commenced the review of the tax transparency phase in 2011, achieving good results and submitting the required legal documents. The UAE was the first Arab country to win a seat on the International Steering Committee, and in 2014 the Global Forum decided that the UAE will move forward to the second phase of evaluation which ends in 2017 at the latest.
MoF signed a MoU with the Global Forum Secretariat on the legal and practical implementation of the international standards of transparency. MoF also held meetings with various stakeholders in the country to guide them through implementing the recommendations outlined in the ‘Evaluation of the UAE’ report on information exchange.
MoF’s efforts come in line with the Cabinet Resolution No. 17 of 2012, whereby the ministry is authorised to collect and exchange information and data on natural persons and legal entities licensed to operate in the UAE, including free zones.
Federal level MoUs
Eight MoUs were signed in this regard with:
- Central Bank of the UAE
- Dubai International Financial Centre (DIFC)
- Jebel Ali Free Zone (Jafza)
- Dubai Multi Commodities Centre (DMCC)
- Fujairah Free Zone Authority
- Ras Al Khaimah Free Trade Zone (RAK FTZ)
- Ras Al Khaimah Investment Authority (RAKIA)
- Umm Al Quwain Free Trade Zone Authority
Based on the strategic partnership between the UAE and OECD, MoF signed an extended MoU for a fourth period 2016-2018. It also organised a number of introductory workshops on the exchange of tax information, which saw the participation of tax experts from all over the world.
These workshops discussed the common international standards in the field of tax reports, implementation mechanisms and approved legal frameworks. The aim was to develop a system for automatic exchange of tax information while complying with the rules of confidentiality of the exchanged tax information, and protecting such information from risks to avoid any negative consequences on the relevant stakeholders.
The legal framework of information exchange includes the following international agreements:
- Avoidance of Double Taxation
- Exchange of Information for tax purposes
- Mutual administrative assistance
The Exchange of Information mechanism includes the following:
• Information Availability
• Information Accessibility
• Exchange of Information
Protection and promotion of investments
Intending to promote its developmental goals, the UAE concluded 106 BIT, with most of its trade partners, these agreements aim to:
- Protect investments from all non-commercial risks like nationalization, expropriation, sequestration and freezing.
- Allow the establishment of investments and licensing such investments.
- Confirm the free transfer of profits and other returns in a freely transferable currency.
- Granting national treatment in accordance with the laws enforce in the State, and the most favored nation treatment, with respect to management, maintenance and expansion of investments.
- Fair and prompt compensation for the investor in the case of expropriation of his investment for the purpose of public interest, in accordance with the law and without discrimination, the compensation should amount to the fair market value on the investment before the expropriation.
- Set the dispute settlement procedures between the investor and the State .
i) Amicable solution.
ii) Local courts or international arbitration.