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Government to Benefit from a Special DTT With UAE


A Double Tax Treaty between the Russian government and the government of the United Arab Emirates was signed in Abu Dhabi on 7 December 2011. This DTT is very unusual because it is not based on the OECD Model Tax Convention on Income and Capital so tax benefits would only be applied by the government offices of both countries. Taxand Russia looks at the potential benefits of the new treaty for businesses with interests in Russia or the United Arab Emirates.

The reason that led Russia to follow this unusual route is because the United Arab Emirates is regarded as an offshore jurisdiction under Russian legislation. This is due to the low taxation and lack of a formal information exchange agreement with the United Arab Emirates. That and the fact that there are no real methods for controlling financial transactions and fighting harmful tax avoidance tactics has led to the DTT being signed. However, the DTT does not apply to privately held companies.

In Russia, any financial or investment companies and offices which are wholly owned by a Russian Federation or an entity of the Russian Federation are subject to this treaty. In the United Arab Emirates, local governments of the United Arab Emirates, the Central Bank of United Arab Emirates, Investment Offices of United Arab Emirates, the State Pension Fund of United Arab Emirates, any financial or investment organisation, establishment, agency, office or any other organisation which is wholly owned by a United Arab Emirates entity would be subject to the conditions of this treaty.

Taxand's Take

The DTT will give rise to good opportunities for strategic investment both for Russia and for the United Arab Emirates, and other countries (countries in the Commonwealth of Independent States of Russia and countries of the Persian Gulf for United Arab Emirates). Crucially, this DTT can be useful for private business too, which can invest through public (government) investment funds and get an extra boost from the tax benefits. It can be applied for real business with real investments. The DTT can be used alongside the existing financial system of United Arab Emirates and can also be applied to Islamic financial products.

Your Taxand contacts for further queries are:
Andrey Tereschenko
T. +7 495 967 00 07

Ivan Zelenin
T. +7 495 967 00 07

Taxand's Take Author