Embed Size (px)
Citation preview
2015 - Edition 5Middle East Newsletter
The Loyens & Loeff Middle East Newsletter is produced by Loyens & Loeff in Dubai. It is designed to alert those (interested in) doing business in the Middle East region to recent international tax developments in the region. Such developments are discussed in brief terms and are based on generally available information. The material was assembled based on information available as at 1 June 2015.
2
In this edition• Bahrain• Kuwait• Oman• Qatar• Saudi Arabia• United Arab Emirates
3
3
Dear Reader,
Through this Middle-East Newsletter we aim to keep you abreast of the recent international tax developments in the GCC.
As an internationally oriented tax and corporate law firm, we follow international developments closely. The conclusion
of bilateral tax treaties is a topic that is relevant for any multinational when considering its cross-border corporate and
investment structures and its international tax position.
As can be derived from this newsletter, the GCC member states are rapidly expanding their tax treaty networks to facilitate
both inbound and outbound investments. It should be noted that many countries concluding tax treaties with the GCC
member states, may negotiate specific provisions to deal with the ‘no or low tax’ status of the GCC countries. This means
that it is imperative to meticulously analyze potential tax treaty benefits on a case-by-case basis.
Providing specialized international tax advice requires expertise and experience. Our firm’s tax capabilities are highly
regarded by many clients and rewarded by reputable organizations, like Chambers & Partners, the Legal 500 and others.
Also in the MENA region our tax capabilities have been recognized. In this respect, we are proud to have been awarded
BEST TAX ADVISORY FIRM by MENA FM.
About Loyens & Loeff
As you may know, Loyens & Loeff has a longstanding experience of providing high quality tax and legal advice. The firm’s
history dates back to the early 20th century. At present, Loyens & Loeff has 13 offices, which are spread out over Asia
Pacific, the Middle East, Europe and the US.
Loyens & Loeff is an independent full service firm of civil lawyers, tax advisers and notaries, where civil law and tax
services are provided on an integrated basis. Over 1400 people work for the firm, including 840 civil lawyers, tax advisers
and notaries. Our size and range make the firm unique in our home markets Luxembourg, the Netherlands, Belgium and
Switzerland.
We hope that the content of this Middle East Newsletter is useful to you. Should it give rise to any questions, please feel
free to contact us or your contact person within Loyens & Loeff.
Yours sincerely,
Jan Bart Schober Tim Dopmeijer
Tax partner Tax associate
BahrainBahrain and Portugal concluded a tax treaty26 May 2015 – Officials of Bahrain and Portugal
concluded a tax treaty on 26 May 2015 in Manama
Bahrain. The main treaty characteristics are as follows:
• The treaty provides a withholding tax rate for the
source state of 10% of the gross amount of the
dividends (if the beneficial owner of the dividend is
a company which holds directly at least 25% of the
capital of the company paying the dividend), or 15%
in all other cases.
• The withholding tax rate on interest payments is
capped at 10% of the gross amount of the payment.
• The taxation right that is allocated to the source state
in respect of royalty payments is limited to 5% of the
gross amount of the royalty.
• Capital gains realized on a shareholding by a resident
of one of the countries upon a shareholding in the
other country are generally taxable in the country
where the alienator is a resident, unless the shares it
regards derive their value (directly or indirectly) mainly
(>50%) from immovable property in the source state
(in such case the taxing right is allocated exclusively
to the source state).
• In article 27, the treaty contains a ‘limitation on
benefit’ clause, which provides that (i) the countries
remain allowed to impose their domestic anti-
avoidance provisions under the treaty, (ii) the treaty
benefits should not be granted in case the resident
is not the beneficial owner of the income, and (iii) the
treaty shall not be applied in case the main purpose
(or one of the main purposes) of the treaty is to obtain
treaty benefits.
• According to article 29, the provisions of the treaty
enter into effect on 1 January of the year following the
date on which the treaty enters into force. The treaty
will enter into force after the ratification procedure
has been fulfilled by the two countries.
4 5
Treaty negotiations between Bahrain and India22 February 2015 – Following a meeting held in New
Delhi, India, on 22 and 23 February 2015, officials of
Bahrain expressed their interest to continue negotiations
to reach a tax treaty between Bahrain and India. Treaty
negotiations were initially initialed in 1998. Bahrain
and India concluded an agreement on the automatic
exchange of information in 2012.
KuwaitIraqi Minister of Finance authorized to enter into treaty negotiations with Kuwait31 March 2015 – The Iraqi Council of Ministers
authorized its Minister of Finance to negotiate and sign
an income and capital tax treaty with Kuwait. Once more
information is available, we will report in future editions of
this newsletter.
Kuwait considers introduction of income tax on local companies18 March 2015 – It was reported by IBFD that the
Minister of Commerce and Industry of Kuwait is currently
discussing the introduction of an income tax on local
companies in Kuwait with the International Monetary
Fund (IMF). Presently, only foreign companies are subject
to income tax. Local companies that are (partially) owned
by foreign companies are subject to tax on the share of
the foreign company.
It seems that the decrease in international oil prices
(resulting in a drop in Kuwait’s revenues from oil of about
USD 20 billion) has accelerated the discussion on this
matter. If it comes to a proposal, once agreed by the
Cabinet, it requires further approval from Parliament.
Treaty between Bahrain and Cyprus signed, approved by Bahrain and details available27 April 2015 – In the previous edition of this newsletter
we reported that the Bahraini Council of Ministers had
approved the tax treaty with Cyprus for signature. The
treaty was officially concluded on 9 March 2015 in
Manama, Bahrain. On 27 April 2015 the Cabinet of
Ministers of Bahrain approved the treaty.
We hereafter provide you with the treaty details.
• No withholding tax on the payments of dividends,
interest and royalties (i.e. host state taxation only).
• Capital gains realized by a resident of one of the
states upon the shareholding of a company resident
in the other state are taxable only in the state in
which the alienator is a resident (irrespective of the
composition of the assets of the company and/or
where the value of such company is derived from).
• The provisions of the treaty will enter into effect on
1 January of the year following the year in which the
ratification procedure has been fulfilled.
Treaty between Bahrain and Hungary ratified by Bahrain12 April 2015 – Bahrain ratified the tax treaty with
Hungary. The tax treaty was concluded on 24 February
2013 in Manama, Bahrain. Please refer to the second
edition of this newsletter for the contents of the treaty.
Treaty negotiations between Bahrain and Kyrgyzstan16 March 2015 – According to an official update by
the government of Kyrgyzstan, officials of Bahrain and
Kyrgyzstan have entered into negotiations to come to a
tax treaty between the two countries. More information
(such as treaty contents) has not yet been made public.
We will inform you accordingly when there are any
developments in this respect.
5
6 7
Oman – Portugal tax treaty concluded in Lisbon27 April 2015 – Officials of Oman and Portugal concluded
a tax treaty between the countries. This was done on
27 April 2015 in Lisbon, Portugal. A copy of the treaty
contents has not yet been made public. Treaty details will
be reported once available.
Georgia approved treaty negotiations with Oman2 April 2015 – The Government of Georgia authorized
to enter into treaty negotiations with Oman. This would
be the first tax treaty between the countries. Details have
not yet been made public and will be reported in this
newsletter once available.
Oman – Lithuania tax treaty negotiations have commenced3 February 2015 – Following a meeting held in
Muscat, Oman on 3 February 2015, it was reported that
negotiations to come to a tax treaty between Oman and
Lithuania have commenced. Developments on this topic
will be reported once available.
QatarQatar – Peru tax treaty negotiations update28 May 2015 – It has been reported by IBFD that a third
round of treaty negotiations was scheduled to reach a tax
treaty between Qatar and Peru (in Doha, Qatar on 27 and
28 May 2015). Reportedly, the previous round of treaty
negotiations took place in Lima, Peru. More information
is not yet public and will be reported once available.
Qatar – Kyrgyzstan tax treaty entered into force26 May 2015 – Following the ratification procedure by both
countries, the tax treaty between Qatar and Kyrgyzstan
entered into force on 4 May 2015. Consequently, the
provisions of the treaty can be benefitted from as of
1 January 2016.
OmanOman – Switzerland tax treaty concluded22 May 2015 – On 22 May 2015, officials of Oman and
Switzerland concluded a tax treaty with each other (in
Sugiez, Switzerland). The most notable treaty provisions
are as follows:
• The maximum dividend withholding tax rate on
dividend distributions amounts to 5% of the gross
amount of the dividend if the beneficial owner is a
company (other than a partnership) which holds
directly at least 10% of the capital in the distributing
company, or 15% in other cases. Certain (government
linked) institutions and pensions funds are exempt
from dividend withholding tax.
• The maximum interest withholding tax rate on interest
payments amounts to 5% of the gross amount of the
interest. Certain interest payments are exempt from
interest withholding tax (among which interest on
bank loans and interest on intercompany loans).
• The maximum royalties withholding tax rate on
royalty payments amounts to 8% of the gross amount
of the royalty. The treaty also contains a most favored
nation (MFN) clause in respect of the royalty article
(i.e. if Oman would conclude a tax treaty or similar
arrangement with a third state in which it agrees on
a lower withholding tax rate for royalties, such lower
withholding tax rate would apply mutatis mutandis to
the Oman – Switzerland tax treaty).
• Capital gains on shares are in principle taxable
only in the state in which the alienator is a resident.
However, the taxing right is exclusively allocated to
the source state in case the assets of the company
which it regards consists, directly or indirectly, for
more than 50% of immovable property situated in
that country.
Oman – Spain tax treaty approved by Spanish Congress and Spanish Senate30 April 2015 – Further to our news report in the third
edition of this newsletter, the Spanish congress has
approved the tax treaty between Oman and Spain on
30 April 2015. Thereafter, on 27 May 2015, the Spanish
Senate approved the treaty. For an overview of the treaty
contents, kindly refer to the third edition of this newsletter.
7
Qatar – Fiji tax treaty approved for ratification10 May 2015 – Qatar’s Emir approved the Qatar – Fiji
tax treaty for ratification. The treaty will enter into force
once the ratification procedure has been fulfilled and the
provisions of the treaty enter into effect as of 1 January of
the year following the entry info force date.
Qatar – Gambia tax treaty approved for ratification10 May 2015 – Qatar’s Emir approved the Qatar –
Gambia tax treaty for ratification. The treaty will enter into
force once the ratification procedure has been fulfilled
(and the provisions of the treaty enter into effect as of
1 January of the year following the entry into force date).
For an overview of the most notable treaty provisions,
kindly refer to the previous edition of this newsletter.
Qatar – Latvia tax treaty approved for ratification10 May 2015 – Qatar’s Emir approved the Qatar
– Latvia tax treaty for ratification. As set out in our
previous newsletter, the treaty was ratified by Latvia on
11 December 2014. The treaty will enter into force when
the ratification instruments have been exchanged. It can
expected that the ratification procedure will be fulfilled
later this year. If that would be the case, the provisions
of the treaty can be applied as of 1 January 2016. For
an overview of the most notable treaty provisions, kindly
refer to the previous edition of this newsletter.
Qatar – Ecuador tax treaty ratified by Qatar14 April 2015 – Qatar’s Emir issued an instrument
ratifying the tax treaty between Qatar and Ecuador, which
was concluded between the countries on 22 October
2014 (as communicated in the fourth edition of this
newsletter). The treaty, which is not yet in force and in
effect, contains the following main characteristics:
• The maximum withholding tax rate on dividend
distributions amounts to 5% of the gross amount of
the dividend if the beneficial owner is a company
Qatar – Kenya tax treaty approved for ratification by Qatar25 May 2015 – Qatar’s Emir approved the Qatar – Kenya
tax treaty for ratification. The treaty will enter into force
once the ratification procedure has been fulfilled by both
countries. The provisions of the treaty will enter into
effect on 1 January of the year following the year in which
the ratification procedure is fulfilled. The main treaty
characteristics can be summarized as follows:
• The maximum withholding tax rate on dividend
distributions amounts to 5% of the gross amount of the
dividends if the beneficial owner is a company (other
than a partnership) which holds directly or indirectly
at least 10% of the capital in the company paying
the dividends, or 10% of the gross amount of the
dividends in all other cases. However, distributions of
profits to the other country, its political subdivisions,
local authorities, statutory bodies, the Central Bank
or any entity wholly owned directly or indirectly by that
other country, including, in the case of Qatar, Qatar
Investment Authority and Qatar Holding are fully
exempt from dividend withholding tax.
• The maximum withholding tax rate on interest
payments amounts to 10% of the gross amount of
the interest. However, if the beneficial owner of the
interest is the other country, its political subdivisions,
local authorities, statutory bodies, Central Bank
or any entity wholly owned directly or indirectly by
that other country, including, in the case of Qatar,
Qatar Investment Authority and Qatar Holding, then
the interest payment is fully exempt from interest
withholding tax.
• The maximum withholding tax rate on royalty
payments amounts to 10% of the gross amount of
the royalty.
• Capital gains on shares are taxable in the state in
which the alienator is a resident.
• Article 28 contains a general anti-abuse provision
which states that parties shall not be entitled to the
benefits of the treaty if its affairs were arranged in
such a manner as if it was the main purpose or one of
the main purposes to take the benefits of the treaty.
8
9
available in case it was the main purpose or one of
the main purposes of a resident to obtain the benefits
of the treaty.
Qatar – Gabon tax treaty negotiations31 March 2015 – It has been reported that officials of
Qatar and Gabon entered into treaty negotiations to
come to a tax treaty between the countries. A first round
of treaty negotiations was held in Doha, Qatar on 30 and
31 March 2015. More details are not yet public and will be
reported once available.
Qatar – Nigeria tax treaty authorized for signature by Qatar25 March 2015 – The cabinet of Qatar authorized the
signature of the tax treaty between Qatar and Nigeria. A
copy of the treaty text is not yet available. Details of the
treaty will be reported once available.
Qatar – Swaziland tax treaty negotiations6 March 2015 – It has been reported that officials of
Qatar and Swaziland entered into treaty negotiations to
reach a tax treaty between the countries. A first round of
treaty negotiations was held in Doha, Qatar from 16 to
18 March, last. More details are not yet public and will be
reported once available.
which holds at least 10 per cent of the voting stock
of the company paying the dividend, and to 10%
of the gross amount of the dividend in other cases.
However, dividend distributions to governments, a
political subdivision or a local government and to
various specified (government-linked) institutions are
exempt from dividend withholding tax.
• The maximum withholding tax rate on interest
payments amounts to 10% of the gross amount of
the interest. However, interest payments are exempt
if paid to the government or government-owned
institutions. Article 11, paragraph 4 provides for a list
of qualifying government owned institutions for the
purpose of this exemption.
• The maximum withholding tax rate on royalty
payments amounts to 10% of the gross amount of
the royalty.
• Capital gains realized on shares are generally taxable
in the country in which the alienator is a resident.
However, such gains are exclusively taxable in the
source state (e.g. the state in which the company
whose shares are alienated is a resident) in case the
value of the shares of that company derive, directly or
indirectly, at least 50% of their value from immovable
property situated in that country.
• Article 25 of the treaty provides for an anti-abuse
rule. This clause provides that no treaty benefits are
10 11
more limited scope). The new treaty between Qatar and
Japan provides for the following details:
• The maximum dividend withholding tax rate on
dividend distributions amounts to 5% of the gross
amount of the dividend if the beneficial owner is a
company which, at the moment of the distribution and
at least 6 months uninterruptedly prior thereto, has at
least 10% of the voting power or owns directly at least
10% of the capital in the distributing company, or 10%
in other cases. The reduced dividend withholding tax
rate of 5% is not applicable in the case of dividends
paid by a company which is entitled to a deduction
for dividends paid to its beneficiaries in computing
its taxable income in Japan. However, this exception
is not triggered in specific circumstances whereby a
Qatari government-owned company makes use of an
intermediary company (reference is made to protocol
clause 5).
• The maximum interest withholding tax rate on interest
payments amounts to 10% of the gross amount of
the interest. Certain interest payments (e.g. to mainly
government linked institutions) are exempt from
interest withholding tax. Protocol clause 6 provides
for a list of qualifying “institutions wholly owned by the
Government” that could benefit from the exemption of
interest withholding tax.
• The maximum royalty withholding tax rate on royalty
payments amounts to 5% of the gross amount of the
interest.
• Capital gains on shares are generally taxable in the
state in which the alienator is a resident. However,
gains realized on interests in a company, partnership
or trusts deriving at least 50% of their value of its
assets directly or indirectly from immovable property
may be taxable in the state in which such immovable
property is situated, unless the relevant class of the
shares or the interests is traded on a recognized
stock exchange and the resident and persons related
or connected to that resident own in the aggregate
5 per cent or less of that class of the shares or the
interests. The protocol to the treaty provides for a list
of qualifying stock exchanges (protocol clause 7).
Qatar – South Africa tax treaty concluded6 March 2015 – Officials of Qatar and South Africa
agreed and concluded a tax treaty in Pretoria, South
Africa. The treaty, which is not yet in force and in effect,
contains the following main characteristics:
• The maximum dividend withholding tax rate on
dividend distributions amounts to 5% of the gross
amount of the dividend if the beneficial owner is a
company (other than a partnership) which holds at
least 10 per cent of the capital of the company paying
the dividends, or 10% of the gross amount of the
dividend in all other cases.
• The maximum interest withholding tax rate on interest
payments amounts to 10% of the gross amount of
the interest. However, interest payments are exempt
if paid to a qualifying (mainly government-linked)
creditor or if the interest is paid on a debt instrument
listed on a recognized stock exchange.
• The maximum royalty withholding tax rate on royalty
payments is 5% of the gross amount of the royalty.
• The dividend, interest and royalty article in the treaty
each contain an anti-abuse provision in the form of
a main purpose test which states that the respective
article shall not apply if it was the main purpose or
one of the main purposes to take advantage of the
aforesaid article.
• Capital gains on shares are generally taxable in the
country in which the alienator is a resident. However,
the taxing right in respect of capital gains on shares
is allocated to the source state in case the alienation
regards shares of a company the property of which
consists directly or indirectly wholly or mainly of
immovable property situated in that country, unless
the immovable property is used for the purposes of
carrying on an industrial or manufacturing activity (i.e.
taxing right allocated to host country).
Tax treaty between Qatar and Japan concluded in Tokyo20 February 2015 – A new tax treaty was concluded
between Qatar and Japan in Tokyo, Japan. The treaty
will replace the 2009 transport tax treaty (which has a
11
Saudi ArabiaNew rules for foreign investors aiming to access and trade in KSA stock markets1 June 2015 – On 4 May 2015, the Saudi Capital Market
Authority issued rules allowing foreign investors to enter
and trade stocks on the Saudi stock market. According to
IBFD, these rules are as follows:
Foreign investors concerned by this measure have to
meet a number of requirements, including the following:
• to be a bank, a brokerage or securities firm, a fund
manager or an insurance company;
• to be licensed or subject to regulatory oversight
according to regulatory and monitoring standards
that are similar to those applied by the authority;
• to have in principle at least USD 5 billion of assets
under management;
• to have carried on securities-related activities for at
least 5 years.
• Protocol clause 11 provides for a general anti-abuse
provision which reads as follows: ‘It is understood
that no relief shall be available under the Agreement
if the main purpose or one of the main purposes
of any person concerned with the creation or
assignment of any shares, debt-claims or other rights
or properties in respect of which income arises was
to take advantage of the Agreement by means of that
creation or assignment.’
Qatar – Bangladesh tax treaty authorized for signature by Qatar4 February 2015 – The Cabinet of Qatar authorized
the signature of the tax treaty between Qatar and
Bangladesh. The contents of the treaty are not public yet
and will be reported once available.
12 13
Saudi Arabia – Hong Kong tax treaty negotiations update8 May 2015 – The Hong Kong tax authorities published an
update stating that the third round of treaty negotiations
between Saudi Arabia and Hong Kong were scheduled to
take place from 12 to 14 May 2015. More details are not
known yet and will be reported once available.
Saudi Arabia – Hungary tax treaty entered into force1 May 2015 – The tax treaty between Saudi Arabia and
Hungary entered into force as per 1 May 2015. According
to article 29 of the treaty, its provisions can be applied
as from 1 January 2016. For a detailed overview of the
main characteristics of the treaty, we refer to the previous
edition of this newsletter.
Saudi Arabia expressed intentions to conclude tax treaty with Lithuania26 April 2015 – Officials of Saudi Arabia and Lithuania
have met each other in Jeddah, Saudi Arabia on 26 April
2015. Following this meeting, it was expressed by Saudi
Arabia that it is their intention to negotiate and conclude
a tax treaty with Lithuania.
Saudi Arabia – Kyrgyzstan tax treaty approved by Saudi Arabia and Kyrgyzstan23 April 2015 – The tax treaty between Saudi Arabia
and Kyrgyzstan was approved by the government of
Kyrgyzstan on 23 April 2015. On the Saudi Arabian side,
the treaty was approved by the Cabinet of Saudi Arabian
on 7 April 2015. The treaty will enter into force once the
ratification procedure has been fulfilled and development
in this respect will be reported once available.
Saudi Arabia and Jordan initialed a tax treaty22 April 2015 – After a successful fourth round of treaty
negotiations (held from 19 to 22 April 2015 in Amman,
Jordan), Jordan and Saudi Arabia initialed a tax treaty.
More details are not public yet but will be reported once
available.
Access to the Saudi stock market remains subject to the
following limitations:
• individually, each qualified foreign investor may not
own more than 5% of the issued shares of any listed
company;
• for any listed company, qualified foreign investors
may not own in the aggregate more than 20% of the
issued shares;
• in the aggregate, qualified foreign investors may not
own more than 10% of the market value of issued
shares of all listed companies; and
• foreign ownership, including indirect ownership
through the currently permissible “interest under
swaps”, in all listed companies must not exceed 49%
of the issued shares.
Under the Saudi tax regulations, capital gains on the
alienation of listed shares are exempt from tax. Dividends
paid to non-residents with no permanent establishment in
Saudi Arabia are subject to a 5% withholding tax (subject
to reductions under tax treaties if applicable).
Saudi Arabia – Azerbaijan tax treaty entered into force30 May 2015 – Following the approval by the Cabinet
of Saudi Arabia on 23 February and the completion of
the ratification procedure, the tax treaty between Saudi
Arabia and Azerbaijan entered into force as per 30 May
2015. According to article 29 of the treaty, its provisions
can be applied as from 1 January 2016. For a detailed
overview of the main characteristics of the treaty, we refer
to the previous edition of this newsletter.
Saudi Arabia – Georgia tax treaty initialed21 May 2015 – Saudi Arabia and Georgia initialed a
tax treaty between the countries. Further details will be
reported once available.
Saudi Arabia – Sweden tax treaty negotiations update21 May 2015 – The Swedish tax authorities reported that
the treaty negotiations with Saudi Arabia are still ongoing.
More details are not known yet and will be reported once
available.
13
14 15
15
Saudi Arabia – Sudan tax treaty initialed25 March 2015 – On 25 March 2015, Saudi Arabia and
Sudan initialed a tax treaty in Riyadh, Saudi Arabia. It was
reported that it is expected that the treaty will be signed
shortly. Further details, once available, will be reported in
future editions of this newsletter.
United Arab EmiratesUAE – Argentina tax treaty talks to continue26 May 2015 – Following a meeting held in Abu Dhabi,
UAE, on 26 May 2015, the UAE and Argentina agreed
to continue treaty negotiations to come to a tax treaty
between the countries. Treaty negotiations initially started
in 2006 but did not yet result in a tax treaty between the
countries. Further treaty developments in this respect will
be reported once available.
Intentions mutually expressed to come to UAE – Mongolia tax treaty20 May 2015 – Following a meeting between officials of
the UAE and Mongolia (held in Dubai on 20 and 21 May
2015), the countries have mutually expressed their
intentions to come to a tax treaty. Tax treaty negotiations
are expected to commence soon. Further details about
these developments will be reported once available.
UAE – Hong Kong tax treaty published in official gazette by Hong Kong18 May 2015 – The tax treaty that was concluded by the
UAE and Hong Kong on 11 December 2014 has been
published by Hong Kong in the official gazette on 15 May
2015 and was scheduled at the Legislative Council on
20 May 2015 for negative vetting. We reported about
the contents of this tax treaty in the previous edition of
this newsletter. The treaty will not enter into force before
the ratification procedures have been fulfilled by both
countries.
Saudi Arabia and Guernsey tax treaty negotiations have commenced21 April 2015 – According to an official update published
by the Guernsey tax authorities, tax treaty negotiations
between Saudi Arabia and Guernsey have commenced.
At this stage, no details are public but will be reported
once available.
Saudi Arabia – Morocco tax treaty concluded14 April 2015 – On 14 April 2015, officials of Saudi
Arabia and Morocco concluded a tax treaty between the
countries in Rabat, Morocco. The treaty will enter into
force once the ratification procedure has been fulfilled.
Reportedly, the main characteristics of the treaty are as
follows:
• Maximum withholding tax of 10% on dividend
distributions, reduced to 5% if the beneficial owner
is a company which directly owns at least 10% of the
capital of the company paying the dividend.
• Maximum withholding tax of 10% on interest
payments. However, an exception applies to interest
payments made to the government, local authorities,
the central bank of the other contracting state or any
financial institution wholly owned by the government
of the other contracting state.
• Maximum withholding tax of 10% on royalty payments.
• Capital gains on the disposal of shares of a company
resident in one contracting state may be taxed in
that state. In addition, the treaty does not include a
provision on the taxation of capital gains from the
disposal of real estate companies.
Saudi Arabia – Portugal tax treaty concluded8 April 2015 – It has been reported that officials of
Portugal and Saudi Arabia concluded a tax treaty in
Lisbon, Portugal on 8 April 2015. As far as we are aware,
the treaty contents have not been made public. Hence,
these will be reported in this newsletter once available.
16
arrangements has been to obtain these benefits that
would not be otherwise available. The cases of legal
entities not having bonafide business activities shall
be covered by this Article’.
• Article 24 (methods of elimination of double taxation)
has been amended such that the exemption method
applied by Poland for dividends, interest and
royalties, is replaced by a credit method to avoid
double taxation. Finally, the exchange of information
clause (article 27) has been literally brought in line
with the relevant provision in the OECD Model Tax
Convention.
UAE – Kyrgyzstan tax treaty approved by Government of Kyrgyzstan23 April 2015 – The Government of Kyrgyzstan approved
the tax treaty between the UAE and Kyrgyzstan. As a next
step, the tax treaty was sent to Kyrgyzstan’s Parliament
for ratification. More information on the development of
this treaty will be reported once available.
New treaty between UAE and Romania authorized for signature by Romanian government22 April 2015 – The Romanian government authorized
the signing of a tax treaty that has recently been
concluded with the UAE. Once in force, the new tax
treaty will replace the current tax treaty in force between
the UAE and Romania (which dates back from 1993).
The treaty details of the new tax treaty have not yet been
made public, but will be reported once available.
UAE ratified the UAE – Albania tax treaty15 April 2015 – By way of Federal Decree (No. 37/2015),
as published in Official Gazette number 578, the UAE
ratified the tax treaty with Albania. The ratification from
the side of Albania was fulfilled on 19 June 2014. Hence,
the treaty can be expected to enter into force later this
year.
Certain main characteristics of the treaty are as follows:
• Individuals being resident in the UAE without
possessing the UAE nationality (e.g. Albanian
expats) are not entitled to treaty benefits as they do
not qualify under article 4 as a resident of the UAE.
UAE – UK tax treaty update13 May 2015 – The Minister of State for Financial
Affairs of the UAE, HE Obaid Humaid Al Tayer received
the UK Ambassador to the UAE, Mr Philip Parham
at the Ministry of Finance in Abu Dhabi. The bilateral
economic relations between the countries and the latest
developments regarding the rounds of negotiations on
signing double taxation avoidance agreement were
discussed. It was reported that the countries held a fifth
round of negotiations in January 2015 on signing a tax
treaty. Further treaty developments will be reported once
available.
UAE – Poland protocol to the tax treaty entered into force1 May 2015 – As from 1 May 2015, the protocol to the
tax treaty between the UAE and Poland entered into
force. Consequently, the provisions of the protocol can
be applied as from 1 January 2016. The main elements
are as follows:
• In article 12, the definition of a “royalty” has been
replaced by the following definition: ‘The term
“royalties” as used in this Article means payments of
any kind received as a consideration for the use of,
or the right to use, any copyright, patent, trade mark,
design or model, plan, secret formula or process,
or for the use of, or the right to use any industrial,
commercial, or scientific equipment or for information
(knowhow) concerning industrial, commercial or
scientific experience; this term also means payments
of any kind received as a consideration for the use of,
or the right to use, any copyright on cinematograph
films, and films or tapes for radio or television
broadcasting.‘
• The provision dealing with capital gains has been
amended such that a taxation right is granted for the
source state with respect to shares which, directly
or indirectly, principally derive their value from real
property located in that source state.
• After article 23 of the treaty, a new article 23a which
contains a ‘limitation of benefits’ clause is being
introduced. The new articles reads as follows:
‘Benefits provided for by this Agreement shall not be
available where it might be considered that the main
purpose or one of the main purposes for entering into
17
or indirectly from immovable property situated in the
other country (i.e. source state exclusive taxing right).
Tax treaty between UAE and Ethiopia concluded12 April 2015 – The UAE and Ethiopia concluded a tax
treaty with each other. The tax treaty contents are not
public yet and will be reported by us once available.
Details of amendments to Luxembourg – UAE tax treaty published2 April 2015 – The Luxembourg Council of Ministers
approved the protocol to the Luxembourg – UAE tax
treaty. The protocol was concluded between the countries
in Abu Dhabi on 26 October 2014. The main amendments
provided by the protocol can be summarized as follows.
1. The protocol introduces additional exemptions from
Luxembourg income tax and corporation tax in
respect of the following items of income:
a. ncome received by a Luxembourg individual or
company from its permanent establishment in
the UAE that is not subject to tax in the UAE,
provided the permanent establishment is active in
agriculture, industry, infrastructure or tourism;
• The maximum dividend withholding tax rate under
the treaty amounts to (a) 0% of the gross amount
of the dividends if the beneficial owner is the other
contracting state or any governmental institution or a
specified institution, (b) 5% of the gross amount of the
dividends if the beneficial owner is a company (other
than a partnership) which holds directly at least 10%
of the capital in the company paying the dividends,
or (c) 10% of the gross amount of the dividends in all
other cases. According to the protocol to the treaty,
if shares are sold by the shareholder to the issuer
in connection with the liquidation of such company
or the reduction of paid up capital, the difference
between the selling price and the par value shall be
treated as a dividend distribution (and not as a capital
gain).
• The treaty does not provide for a withholding tax on
interest payments (i.e. taxable only in the creditor/
recipient state).
• The maximum royalty withholding tax rate under the
treaty amounts to 5% on the gross amount of the
royalty.
• Capital gains on shares are taxable only in the state
in which the alienator is a resident, unless it regards
shares deriving more than 50% of their value directly
18
5. The protocol updates the list of qualifying financial
institutions for both countries. Like states, local
governments and local authorities, these specified
financial institutions benefit from a 0% dividend
withholding tax rate under the treaty, provided they
are the beneficial owner of the dividend.
The protocol shall enter into effect as of 1 January of the
year following the entry into force date of the protocol.
The protocol will enter into force when both countries
have exchanged the ratification instruments through
diplomatic channels with each other.
Tax treaty between UAE and Comoros Islands concluded26 March 2015 – The UAE and the Comoros Islands
concluded a tax treaty and an investment protection
agreement with each other (in Sharm el-Sheikh, Egypt).
The tax treaty contents are not public yet.
UAE – Liechtenstein tax treaty initialed27 February 2015 – On 27 February 2015, Liechtenstein
and the UAE initialed a tax treaty. More information is not
yet public but will be reported once available.
b. dividends received by a Luxembourg company
from a UAE subsidiary, provided the Luxembourg
company has directly held at least 10 per cent of
the capital of the subsidiary since the beginning of
the accounting year, and
i. the subsidiary is subject in the UAE to an
income tax corresponding to the Luxembourg
corporation tax; or
ii. the subsidiary is exempt from tax, or taxed at
a reduced rate in the UAE, but the dividend
is derived out of profits from activities in
agriculture, industry, infrastructure or tourism
in the UAE.
2. The protocol introduces an exemption from
Luxembourg net wealth tax with respect to a
participation in a UAE company, if the conditions as
set out under 1, letter b, are satisfied.
3. The protocol amends the capital gains article of the
treaty. This amendment aims to clarify that capital
gains derived from the disposal of shares in listed
companies are taxable only in the state of residence
of the seller.
4. The protocol broadens the scope of the exchange
of information under the treaty. In line with OECD
developments, it will cover information that is
‘foreseeable relevant’ to carry out the provisions of
the treaty or to the administration or enforcement
of the domestics laws concerning certain taxes or
levies. A provision will be introduced that stipulates
that a contracting state, which is requested for
information, is obliged to use its information gathering
measures to obtain the requested information, even
though that state may not need that information for
its own tax purposes. It has also been agreed that in
no case a contracting state is permitted to decline to
supply information because the information is held by
a bank, other financial institution, nominee or person
acting in an agency or a fiduciary capacity or because
it relates to ownership interest in a person.
19
Contact
Loyens & LoeffP.O. Box 506647, DubaiDubai International Financial Centre (DIFC), Gate Village, Building #10, Level 2, Office 202, DubaiUnited Arab EmiratesT +971 4 437 27 00F +971 4 425 56 73
Jan Bart SchoberT +971 4 437 27 07M +971 56 179 67 76E [email protected]
Tim DopmeijerT +971 4 437 27 12M +971 502 403 453E [email protected] www.loyensloeff.com
About Loyens & Loeff
At the heart of the legal and tax worldIndependent, international and specialised in Dutch, Belgian, Luxembourg and Swiss law. With offices in the Netherlands, Belgium, Luxembourg and Switzerland and branches in the most important global financial centres, Loyens & Loeff is completely at the heart of the legal and tax world. Your interest is our priorityWith a wealth of knowledge and experience gathered over the years, we have been active in the legal and tax environment since the beginning of the 20th century. You can count on us to provide personal, tailored advice worldwide. Our 900 advisers closely follow all developments and act quickly to turn them to your advantage. Directly, proactively and always with your best interests as our priority. We combine our knowledge and experience to create high-quality, creative and efficient solutions. That way we can resolve your issues with an innovative and pragmatic approach.
Integrated and connectedWithin Loyens & Loeff, our legal and tax advisers work under the same roof. That means that lawyers, tax advisers and civil law notaries form cohesive teams and all challenges are approached from various angles. Integrated and connected. We view matters from all perspectives that come with a full-service practice. We always consider the full range of options for your situation, which offers you numerous advantages.
Although this publication has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons and practices trading under the name ‘Loyens & Loeff’, cannot accept any liability for the consequences of making use of this issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice.
www.loyensloeff.com
Amsterdam
Arnhem
Brussels
Dubai
Hong Kong
London
Luxembourg
New York
Paris
Rotterdam
Singapore
Tokyo
Zurich
