Double-Tax Treaties
Dubai
is a 'no tax' emirate. Accordingly double taxation
treaties are aimed at making Dubai a more attractive
territory in which to operate by reducing taxation
levied in the foreign jurisdiction on profits
remitted abroad by foreign corporations operating
in Dubai.
There
are double taxation agreements with Algeria, China,
Egypt, Finland, France, Germany, India, Indonesia,
Italy, Jordan, Kuwait, Luxembourg, Malta, Malaysia,
the Netherlands Pakistan, Poland, Romania, Singapore,
South Korea, Sudan, Syria, Turkey and Yemen.
Under
these treaties profits derived from shares, dividends,
interest, royalties and fees are taxable only
in the contracting state where the income is earned.
Although
corporate income tax is not levied in the UAE
the provisions of the treaties do not state that
such income must be taxed to qualify for benefits.
Thus
dividend income paid by a UAE company to a company
which has a double taxation treaty with UAE may
not be taxable in the hands of the foreign parent
corporation even though it has study the tax legislation
of each treaty partner as well as the text of
the treaties themselves before assuming anything
about the tax treatment of untaxed income flows
originating in Dubai.
Recent
additions to the UAE's list bilateral tax agreements
were Luxembourg in 2005, and the Netherlands in
2007.
Welcoming
the agreement with Luxembourg, signed in November
2005, Dr Mohamed Khalfan bin Khirbash, UAE Minister
of State for Finance and Industry, observed that:
"This
agreement will help provide equal taxation treatment
to investors in the UAE and Luxemburg. Moreover,
it provides an environment that stimulates foreign
direct investment, encourages business ventures,
and enhances the cooperation along with the economic
growth levels within the two countries. Further,
it contributes new common projects that benefit
the national economic outcomes of the two countries."
"Moreover,
the agreement encourages tourism and bilateral
trade between the two countries especially after
the implementation of income and profit tax exemption
regulations granted to national air cargo companies.
Emirates airlines, Al Ittihad, Air Arabia, and
any air transportation company will benefit from
such exemptions."
The
signature of the UAE-Netherlands DTAA in May 2007
coincided with an official visit by a Dutch trade
delegation, led Dutch Foreign Trade Minister Frank
Heemskerk, to the Dubai Chamber of Commerce and
Industry where he opened the Dutch Investment
Office in Dubai.
According
to Obaid Humaid Al Tayer, Chairman of Dubai Chamber
of Commerce, Dubai's direct non-oil trade with
the Netherlands reached AED 3.2 billion ($880
million) in 2006.
"We
believe this visit would enhance our bilateral
trade volumes, benefiting from the efforts made
by the Dutch Business Council which was established
in the UAE in 1997, and its cooperation with Dubai
Chamber and other commercial organizations in
the UAE, to help promote Dutch products and attract
more Dutch investments to the region," Al
Tayer said.
At
the time, there were 207 Dutch companies operating
in Dubai, 32 of which were fully owned by Dutch
businessmen.
"Opening
a Dutch Investment Office in Dubai is an important
step towards boosting the economic and trade ties
between the Netherlands and the UAE on one hand,
and between the Netherlands and other GCC countries
on the other," said Heemskerk.
"The
main mission of the new office will be to encourage
direct and joint investments in both countries,
exploring and making advantage of the available
opportunities of investment in the Netherlands
and the UAE and strengthening the bilateral trade
ties," he added.
Other International Agreements
Speaking
at a Global Banking Strategy Summit held in Dubai
in April, 2004, Abdulrahim Mohamed Al Awadi, assistant
executive director in charge of the UAE Central Bank's
Anti-Laundering and Suspicious Cases Unit announced
that the UAE is willing to provide assistance to other
countries looking to draft new anti-money laundering
legislation and to create financial intelligence units.
He
also reiterated the commitment of the United Arab
Emirates to its own anti-money laundering and terrorist
financing campaign, and suggested that the jurisdiction
has shown leadership in the region.
"Being
in the vanguard in the global fight against money
laundering and financing terrorism, the UAE is keen
to share its experience with regulators from other
jurisdictions," Mr Al Awadi told delegates, according
to the Khaleej Times Online.
Outlining
initiatives put in place by the authorities in the
United Arab Emirates, he revealed that:
"The
Central Bank of the UAE has set a ceiling of Dh40,000
for the amount that may be brought into the country
in cash or equivalent without the need for declaration.
A regulation has also been issued exclusively to money-changers
to ensure that all outward remittances of Dh2,000
and above are duly documented with proper identification
of customers."
The
Central Bank official additionally revealed that under
updated rules issued by the Securities and Commodities
Authority of the UAE, the settlement of transactions
amounting to more than Dh40,000 is required to be
properly documented, and the identity of the investor
verified.
Earlier
in the year, speaking during a two-day seminar on
"Interrogation and Litigation in Money Laundering
Crimes" at the Dubai Chamber of Commerce and
Industry, American Consul General in Dubai, Jason
Davis, praised the cooperation which exists between
the United Arab Emirates and the United States with
regard to anti-money laundering initiatives.
He
suggested that Federal Law No. 4 (2002), which allows
financial authorities to seize suspicious funds whilst
investigations are taking place, gives the UAE the
necessary edge when it comes to combating money laundering
and terrorist financing, and highlighted the continued
importance of working together and sharing intelligence
and expertise.
"We
are here today to educate and learn at the same time.
We are always interested in benefiting from other
people's expertise," he announced, revealing
that officials from the US Department of Justice periodically
attend similar seminars in the UAE for the purposes
of discussion and exchange of information.
In
January 2005, the DIFC Financial Services Authority
(DFSA), which is the regulatory body for the Dubai
International Financial Centre (DIFC) announced that
it was in talks with 20 regional and international
regulators with a view to securing memoranda of understanding
on information exchange.
Speaking
at the time, chief executive officer of the DFSA,
David King revealed that in addition to seeking an
MoU with the Emirates Securities and Commodities Authority,
talks with the UAE Central Bank regarding information
exchange were high on the regulator's list of priorities.
The
DFSA also revealed that it was seeking to sign similar
agreements with the monetary authorities in other
GCC member states.
Then
in February of that year, it emerged that the DFSA
had signed two memoranda of understanding with the
Isle of Man's Financial Supervision Commission and
Insurance and Pensions Authority.
The
two agreements provide a framework for the provision
of mutual assistance and information exchange between
the two jurisdictions with regard to cross-border
transactions. In addition, the agreements are designed
to improve compliance, thereby helping to prevent
money laundering and fraud.
The
announcement followed the conclusion of a five day
visit to the Gulf region by the Isle of Man's Chief
Minister, Donald Gelling, and a high level Manx delegation.
It also follows the recent signing of an MOU between
the Central Bank of the United Arab Emirates and the
Isle of Man's Financial Supervision Commission.
2006
was, as predicted, a busy year for the DFSA, which
successfully concluded talks on several memoranda
of understanding.
In
March 2006, it emerged that the Authority had entered
into a Memorandum of Understanding with the Jersey
Financial Services Commission (JFSC).
The
agreement formalised arrangements for cooperation
and information sharing between the two regulators.
It also recognised that both regulators place reliance
on the quality of regulatory standards administered
in the other’s jurisdiction.
In
April 2006, the DFSA announced that it had reached
an agreement with the Financial Supervisory Commission
of the Republic of Korea (FSC).
The
MoU formalized arrangements for cooperation and information
sharing between the two regulators, and recognized
the reliance placed by each regulator on the quality
of regulatory standards administered in the other’s
jurisdiction.
In
September 2006, meanwhile, the Capital Market Authority
of Egypt (CMA) and the Dubai Financial Services Authority
(DFSA) revealed that they had signed an important
memorandum of understanding (MoU), designed to enhance
bilateral cooperation between the two regulators.
The
agreement was designed to enhance information sharing
and cooperation between the two authorities, particularly
in their common roles as securities regulators, and
will assist both the CMA and DFSA in important aspects
of their particular regulatory roles.
In
particular the MoU covered the gathering and sharing
of information to enable each authority to assess
the suitability of its authorized firms, to work with
its exchange in the supervision of trading, and to
ensure compliance with its laws.
Finally
that year, the DFSA announced that it had entered
into a Memorandum of Understanding (MoU) with the
Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin),
the Federal Financial Supervisory Authority of Germany.
In
2007, the Dubai Financial Services Authority further
delivered on its commitment to expand its network
of information sharing agreements with foreign national
financial regulators, concluding agreements with New
Zealand, the Netherlands, Guernsey, Greece, Malaysia,
Luxembourg, Switzerland, the United States and Iceland.
Of
particular significance was the mutual recognition
agreement between the DFSA and the Securities Commission
of Malaysia (SC), as a result of which DIFC domestic
funds were the first foreign funds permitted to be
sold into Malaysia.
Commenting
at the time of the agreement's signature, DFSA chief
executive observed that: "This arrangement is
a positive step for both jurisdictions, and is intended
to facilitate the cross border flow of Islamic capital
market products, as envisaged when this initiative
was first announced in August 2006."
Under
the mutual recognition framework, the first of its
type to be concluded by either regulator, Islamic
funds that have been approved by the SC may be marketed
and distributed in the DIFC with minimal regulatory
intervention, following the inclusion of Malaysia
on the DFSA’s list of Recognised Jurisdictions.
Similarly, Islamic funds which have been registered
or notified with the DFSA will be able to access Malaysian
investors. Supported by a bilateral memorandum of
understanding, both regulators will also work closely
in the areas of supervision and enforcement of securities
laws to ensure adequate protection for investors.
Another
noteworthy development was the conclusion of a Memoranda
of Understanding with the national banking and securities
regulators of Switzerland and Luxembourg, which followed
Knott's visit to Berne on April 30, and Luxembourg
on May 2 that year.
“Switzerland
and Luxembourg have long been regarded as among Europe’s
leading international financial centres," Knott
commented upon the announcement by the DFSA of the
new MoUs. “There are already a number of significant
Swiss financial institutions operating from the DIFC
and there is a level of interest from financial entities
in Luxembourg. In addition, there is a possibility
of the development of additional business between
traded markets in the DIFC and Luxembourg. These two
bilateral relationships will assume increasing importance
as each regulator relies on the quality of regulatory
standards administered in the other’s jurisdiction.”
The
MoUs have put in place arrangements facilitating the
exchange of information and investigative cooperation
between the DFSA, the Swiss Federal Banking Commission
(the SFBC), and Luxembourg’s Commission de Surveillance
du Secteur Financier (CSSF).
In
October 2007, the DFSA entered into an historic Memorandum
of Understanding with the United States Banking Supervisors.
The signing coincided with a visit of David Knott
to Washington, where the International Monetary Fund
(IMF) had held its annual meeting that year. The four
federal US agencies principally responsible for banking
supervision in the United States - the Federal Reserve,
the Office of the Comptroller of the Currency (OCC),
the Federal Deposit Insurance Corporation (FDIC) and
the Office of Thrift Supervision (OTS) - all joined
as parties to a comprehensive statement of co-operation
with the DFSA.
Commenting,
Knott stated: “This is an historic event in
the development of the DFSA. Never before has a regulator
from the Middle East entered into such a comprehensive
co-operative arrangement with the US regulators. The
attraction of the Dubai International Financial Centre
(DIFC) as the domicile of choice for US financial
institutions in the Middle East will be further enhanced
by these regulatory relationships.”
This
agreement adopted the model for information sharing
developed by the Basel Committee on Banking Supervision,
and follows similar arrangements the DFSA has with
other significant banking supervisors, such as the
UK Financial Services Authority (FSA) and Germany’s
Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin).
Also
in 2007, the DFSA signed MoUs with the Greek Hellenic
Capital Market Commission (HCMC), the Guernsey Financial
Services Commission (GFSC), the Icelandic FME, the
Japanese Financial Services Agency (FSA), the Dutch
Financial Markets Authority (AFM), and the New Zealand
Securities Commission (NZSC).