The development of a double taxation treaty between Russia and the United Arab Emirates ("DTT") started as early as in 2022, but the final text of agreement was not known until middle of February 2025. The process of drafting the agreement was delayed because the UAE agreed to a 10% withholding tax rate on passive income paid abroad only under the terms of renegotiation of DTTs with other Arab countries, requiring similar tax rates of 10% in such agreements.
On 11 February 2025, the Russian Government published an order on the signing of the agreement. The draft agreement was proposed by the Ministry of Finance and agreed with the Ministry of Foreign Affairs, the Ministry of Economic Development, the Ministry of Justice and the Federal Tax Service and preliminarily elaborated by the Emirati side. On 18 February 2025, the text of the new DTT was signed by the parties.
What are the taxation terms of the new DTT?
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Tax benefits under DTT apply not only to state-owned companies and government agencies, but also to private businesses and individuals;
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Passive income (dividends, interest, royalties) is subject to a reduced withholding tax rate of 10%. The condition for applying the reduced rate is that the recipient is the beneficial owner of the income;
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Regular taxation rules are provided for income derived from business activities - income from business activities is taxed at the source state provided that such income is received through a permanent establishment in that state;
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Income from the sale of shares (interest) in companies is subject to withholding tax if more than 50% of the assets of the company to be sold within 365 days before (or on the date of) the sale consisted of immovable property;
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Income from international shipping and air transportation is taxable in the state of residence of the recipient of the income. Income from the use, maintenance and leasing of containers (including trailers, barges and associated equipment for transportation of containers) is taxable in the source state provided that the use, maintenance and leasing activities is ancillary to the operation of international shipping and air transport. This condition does not apply if the containers are used for transportation solely between points located in the other member state;
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Other income not listed in DTT is subject to withholding tax in the source state;
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For Russian tax residents there is a possibility of crediting withholding tax paid in the UAE. The amount of the credit should not exceed the amount of tax payable in Russia;
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The withholding tax paid in the Russian Federation can also be credited in the UAE. The amount of the credit should not exceed the amount of tax payable in the UAE.
Thus, the DTT between Russia and the UAE is in line with the model international tax treaties based on the OECD and United Nations Model Conventions. The new DTT between Russia and the UAE is expected to enter into force on 1 January 2026, following ratification by both parties.
It is well known that the UAE is the popular jurisdiction for structuring international business with Russian investments. The entry into force of the Agreement will simplify tax planning of such structures.