Bill “On ratification of the Agreement between the Government of the Russian Federation and the Government of the United Arab Emirates on the elimination of double taxation with respect to taxes on income and capital and the prevention of tax avoidance and evasion” has been introduced.

Recall that the Agreement between the Government of the Russian Federation and the Government of the United Arab Emirates on the Elimination of Double Taxation in respect of Taxes on Income and Capital and the Prevention of Avoidance and Evasion of Taxation (hereinafter – the Agreement), was signed in Abu Dhabi on February 17, 2025.

The purpose of the Agreement is to ensure that legal entities and individuals of each of the contracting states (the Russian Federation and the United Arab Emirates) do not pay taxes twice on the same type of income in their state and the partner state. The resolution of this issue will facilitate mutual attraction of investments and provide conditions for the elimination of double taxation of legal entities and individuals.

At present the Agreement between the Government of the Russian Federation and the Government of the United Arab Emirates (hereinafter – UAE) on Taxation of Income from Investments of the Contracting States and their Financial and Investment Institutions, signed in Abu Dhabi on December 7, 2011 (hereinafter – Agreement on Taxation of Public Institutions) is in force between the Russian Federation and the United Arab Emirates (hereinafter – UAE).

The need to revise the Agreement on Taxation of Public Institutions is due to the changed conditions of economic activity both in the Russian Federation and in the UAE.

Negotiations to sign the Agreement lasted more than two years and an important issue was to agree on terms for tax rates that would be similar to those used in Russia’s agreements with Qatar and Saudi Arabia.

The Agreement provides for the application of a 10% rate for interest, dividends and royalties. It is possible to exempt such income from taxation if it is paid to financial, investment and other institutions.

Tax residents of both states, including individuals, will be able to offset taxes paid in the other country.

According to paragraph 4 of Article 10 of the Agreement, the term “dividends” means, in addition to income from shares, also income from the distribution of paid-up surplus capital and reduction of authorized capital, income on other rights of participation in profits, as well as payments on shares of collective investment structures (except for real estate funds or similar structures for investment in real estate).

In accordance with Article 7 of the Agreement, business profits are not subject to withholding tax unless the foreign company operates through a permanent establishment.

Article 13 of the Agreement provides that capital gains on the disposition of shares or similar interests, such as participation in a partnership, trust or collective investment structure, will be taxable if not less than half of the value of such shares or similar interests is represented by immovable property.

When negotiating the Agreement, the Russian Party was based on the Model Agreement between the Russian Federation and Foreign States for the Avoidance of Double Taxation and the Prevention of Evasion of Income and Property Taxes, approved by Resolution of the Government of the Russian Federation No. 84 of February 24, 2010. These parties were also guided by the models recommended by the United Nations (UN) and the Organization for Economic Cooperation and Development (OECD).

The explanatory memorandum to the draft law states that the Agreement does not provide for the introduction of any administrative restrictions or the imposition of additional obligations on subjects of entrepreneurial and other activities that would increase their costs.

In accordance with subparagraph “a” of paragraph 1 of Article 15 of the Federal Law of July 15, 1995 № 101-FZ “On International Treaties of the Russian Federation”, the Agreement is subject to ratification because it contains rules other than those provided for by the Tax Code of the Russian Federation.

It is planned that the Agreement will enter into force on January 1, 2026.

Link: https://sozd.duma.gov.ru/bill/930586-8

Bill No. 930586-8