UAE , KSA Double Taxation Avoidance Agreement in Force

The double taxation avoidance agreement between the UAE and KSA is in force now. The agreement, which was signed in May 2018, came into effect in April 2019, nearly a year later. This is the first agreement between two GCC countries and it is expected to ease the two-way investment flow along with boosting bilateral trade and economic ties. It will benefit individuals and corporates of these two countries.

Below listed are some of the key provisions of the agreement;

• Withholding tax won’t be charged on interest and service fees
• A cutback on the withholding tax rate on royalty payments
• A maximum 5% WHT on dividends
• Transfer of shares or immovable property won’t be exempted from non-resident taxation

It’s not just the natives of these two countries who can benefit from the agreement, even foreign national residents can make use of the provisions.

Residents covered by the double taxation avoidance treaty include any individual who is responsible to pay tax by reason of domicile, residence, place of incorporation or place of management,  corporate entities, sovereign wealth funds and similar government entities and other individuals exempted from tax due to religious, educational, charitable, scientific or any other reasons similar to these.

According to the agreement, a company need not pay tax on profits in the other contracting state unless business activities are conducted there through a permanent establishment(PE). Revenue from services that are not delivered through a PE in the other contracting state should not be levied WHT or any other types of tax in that state.

According to Younis Haji Al Khoori, under-secretary of the Ministry of Finance,  the agreement is a vital move towards enhancing bilateral relations between KSA and UAE, especially in financial and economic spheres. “This agreement will contribute to a more flexible investment climate that will underscore the country’s position as a key destination for Saudi investments. It represents a qualitative leap forward in terms of the framework of financial, economic and tax cooperation between GCC countries,” said Al Khoori.

“These agreements contribute to the elimination of double taxation, facilitate cross-border trade and investment flows, and provide protection to taxpayers from direct and indirect double taxation. This in turn enhances the country’s investment climate and makes it more attractive as a destination for foreign investment,” he added.