Russia and the United Arab Emirates (UAE) have recently concluded negotiations on a new double tax treaty (DTT) aimed at eliminating double taxation on income and capital while preventing tax evasion. This agreement lays a strong foundation in fostering economic cooperation between the two nations and is expected to enter into force on January 1, 2026.
Key Provisions of the Russia-UAE DTT
The treaty establishes a stable and investment-friendly tax environment, ensuring predictability for businesses and individuals operating across both jurisdictions. Some of its notable provisions include:
- Elimination of Double Taxation: The treaty sets out mechanisms to prevent individuals and companies from being taxed twice on the same income, thereby reducing tax burdens and facilitating cross-border trade.
- Anti-Tax Avoidance Measures: The agreement incorporates provisions to prevent tax evasion and ensure alignment with global tax standards, such as those set by the OECD.
- Strengthening Economic Ties: The treaty aims to bolster confidence among investors and enhance bilateral trade and investment flows.
The 10/10/10 Percent Tax Regime
One of the treaty’s standout features is the 10/10/10 percent regime, which sets the following tax rates on key types of income:
- Dividends: A maximum withholding tax rate of 10% (currently 15% under existing rules) will apply to dividend payments between entities in Russia and the UAE. This provision enhances the attractiveness of cross-border investments by ensuring favorable tax treatment for shareholders.
- Interest: Interest payments between residents of the two countries will also be subject to a 10% (currently 25% under existing rules) withholding tax, providing a predictable framework for financing and debt-related transactions.
- Royalties: The treaty caps withholding tax on royalties at 10% (currently 25% under existing rules), ensuring that intellectual property and technology transfers remain competitive and tax-efficient.
Implications for Investors and Businesses
The Russia-UAE DTT is expected to have tangible benefits, including:
- Encouraging Foreign Direct Investment (FDI): By offering reduced withholding tax rates, the treaty makes investment between the two countries more attractive.
- Facilitating Capital Movement: The provisions ensure that capital, goods, and services flow freely between Russia and the UAE, promoting economic integration.
- Aligning with International Tax Standards: The agreement incorporates modern tax principles, addressing global tax challenges and enhancing transparency.
Strategic Significance
This treaty comes at a crucial time when Russia is strengthening its economic partnerships with jurisdictions outside Russia’s traditional Western partners due to recent geopolitical developments. By establishing a favorable tax regime with the UAE, Russia continues to diversify its economic alliances and enhance investment security for businesses operating in both countries.
The final signing and ratification of the treaty are expected soon, paving the way for a robust and structured tax framework that benefits businesses, investors, and governments alike. As the implementation date approaches, companies with interests in Russia and the UAE should assess the treaty’s impact on their tax planning and cross-border operations.
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This article is intended for informational purposes only and does not constitute legal advice. For specific inquiries related to this article or our firm’s expertise in corporate law and mergers & acquisitions, please feel free to reach out to us at info@danilovpartners.com.