United Arab Emirates and Israel sign double taxation treaty

On May 31, 2021, the United Arab Emirates (UAE) and Israel signed a Double Taxation Agreement (DTA). According to the Israeli Ministry of Finance, TNT encourages the development of business between countries after the normalization of relations in 2020.

Based on the model tax convention of the Organization for Economic Co-operation and Development (TCM of the OECD), the main objective of the DTA is to avoid situations of double taxation. Since the UAE currently does not levy any corporate taxes (except from oil and gas companies and foreign bank branches) or withholding taxes, DTT will be primarily effective for inbound Israeli investments. . We understand that the applicable withholding tax rates under the DTA will be as follows:

  • Dividends: 0% – 15% (Israeli national standard rate 25%);
  • Interest: 0% – 10% (Israeli national rate 23%); and
  • Royalties: 12% (Israeli national rate of 23%).

As is the case with most OECD MTC-based DTTVs, access to UAE / Israel DTT and the application of reduced withholding taxes will depend on aspects such as: (i) tax residence, (ii) the identity of the recipient of the income, and (iii) beneficial ownership. As the content of DTT is currently not known to the public, no details are available on aspects such as the attribution of taxing rights in the case of (i) a permanent establishment and (ii ) capital gains, among others. DTT still has to be ratified by the two countries later this year and it is expected to come into force on January 1, 2022.

Government officials said that DTT will significantly promote investment and trade that will help the economies of both countries. For companies operating internationally, the new CDI means that cross-border investments and activities can benefit from favorable tax treatment. Considering the substantial investment potential of UAE sovereign wealth funds, corporate conglomerates and family offices, UAE / Israel DTT is sure to give a strong boost to inbound Israeli investments in sectors such as high tech, agriculture / food security, security, among others. With over 130 DTT and over 90 bilateral investment treaties (providing investor protection) with other jurisdictions, the UAE has created an unprecedented holding platform for internationally active companies. , combining a well-established and easy-to-set up business infrastructure with a highly efficient tax system. This could be of great benefit to Israeli companies looking for a reliable and efficient hub to centralize their assets and investments abroad.

Once the content of DTT is made public, we will report on the full scope and benefits available under it.

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