Agreement on the avoidance of double taxation between the Russian Federation and the UAE

A new Double Taxation Avoidance Agreement (DTAA) between the Russian Federation and the UAE will come into force in 2026.

We will discuss the key innovations introduced by the DTAA and their tax implications, taking into account the legislation of the Russian Federation and the UAE.

1. Reducing the burden on private business

The agreement between the Russian Federation and the UAE that was in force prior to the introduction of the new DTA covered state investments (large companies with state participation).

The new DTA applies to all individuals, companies, and other associations of persons who are residents of one or both states.

The benefits established in the DTA do not apply if the main purpose or one of the main purposes of the transaction was to obtain benefits under the DTA.

2. Exchange of information, abolition of apostilles

The competent authorities of the states will exchange information for the administration of taxes of any kind and type (not only within the framework of the DTA).

A certificate of residence or any document obtained under Article 26 of the DTA does not require legalization or apostille in another state.

3. Profit from business activities, taxation of intra-group services

A company’s profits from business activities are taxable only in the country where it is a resident.

Exception: a company conducting activities in another country through a permanent establishment. In this case, profits attributable to the permanent establishment may be taxable in the other country.

Thus, in general, payments for goods, works, and services provided by a Russian company to a counterparty in the UAE are not subject to withholding income tax in the Russian Federation. This also applies to income of foreign persons from the provision of intra-group services, which, in the absence of an international agreement, were subject to withholding tax in the Russian Federation at a rate of 15%.

4. Preferential rates for taxation of dividends, interest, royalties

The agreement establishes a 10% tax rate for passive income, which is lower than the rates established by Russian legislation:

Income	DTA Tax Rate	Tax rate by Tax Code of Russia
Dividends	10%	15%
Interest	10%	25%
Royalties	10%	25%

The reduced rate provides for a tax reduction when paying income from the Russian Federation to the UAE. In order to apply the reduced rates, the Russian company must have confirmation of the income recipient’s residency, as well as confirmation of their right to income.

It should be noted that the preferential dividend tax rate applies regardless of the size of the share, the term of ownership, or the amount of the income recipient’s investment in the paying company.

The agreement classifies as dividends income from shares, including income from the distribution of additional paid-in capital and reduction of authorized capital, or from other rights that are not debt claims and entitle the holder to participate in profits, as well as other income, including that paid in the form of interest, which is subject to the same taxation as income from shares in accordance with the tax legislation of the country of residence of the company distributing the profits.

Dividend income received by a resident in the UAE may be exempt from taxation in the UAE subject to the conditions of the legislation (UAE Federal Law No. 47 of 2022 “On Corporate Income Tax”) or will be subject to income tax at a rate of 9%.

When dividend income is paid from the UAE to the Russian Federation, no tax is withheld at source in the UAE. In the Russian Federation, such income will be taxed at a rate of 13%, since the UAE is still included in the list of offshore zones (Orders of the Ministry of Finance of Russia dated June 5, 2023 No. 86n, dated March 28, 2024 No. 35n).

Restrictions on the application of benefits have been established with regard to interest and royalties:

if, due to special relations between the payer and the recipient of income, the amount of the payment exceeds the “market” amount, the benefits may only be applied to the “market” amount. The preferential CIT rates will not apply to the remaining part of the income, which will be taxed in accordance with the legislation of each country.

5. Income from real estate and capital

Income from leasing or other use of property may be taxed both in the country where the property is located and in the country where the income recipient is located.

Income from the sale of real estate may be taxed in the country where the property is located.

Thus, income of a person from the UAE from the sale of real estate located in the Russian Federation will be taxed in the Russian Federation at a rate of 25%.

Similarly, income of a resident of one country from the sale of company shares or equity interests may be taxed in another country if, at any time during the 365 days preceding the sale, at least 50% of the value of such shares or similar interests is directly or indirectly represented by real estate located in another country.

Exception: the sale of shares or similar interests that are traded on a recognized stock exchange and the resident owns a total of 5% or less of such class of shares or similar interests.

6. Salary, remote work

The income of an employee who is a resident of one country and works for an employer in another country may be taxed in the other country. However, if the employee is present in the country of employment for less than 183 days in a 12-month period and receives income from a non-resident employer, tax is payable only in the employee’s country of residence.

The Protocol to the DTAA stipulates that remote work is employment in the country where the employer is a resident, not in the country where the employee is located while performing their job duties.

Thus, the income of an individual who works in the UAE under an employment (civil law) contract with a Russian company will, taking into account the DTA, be subject only to Russian income tax. A similar approach to the taxation of remote work has recently been enshrined in the Tax Code of the Russian Federation.

It should be noted that there is no income tax for individuals in the UAE, which eliminates issues of double taxation.

7. International transportation, chartering

A company’s profits from operating ships and aircraft in international transport are only taxed in the country where it’s based.

This rule also applies to the leasing of vessels on a charter basis with crew, full equipment, and on-board supplies, as well as to the leasing of vessels without crew, provided that such leasing is an ancillary activity to the operation of vessels in international transport.

Thus, the income of companies engaged exclusively in the leasing of vessels (time charter, bareboat charter) and not engaged in any other operation of vessels in international transport may be taxed in the country of residence of the party paying the charter income.

8. Avoiding double taxation

If a resident of one country receives income or owns capital that is subject to taxation in another country, the amount of such income or capital tax shall be deducted from the tax levied in the country of which he is a resident. The amount of the deduction shall not exceed the amount of tax on that income or capital calculated in accordance with national legislation.