To promote bilateral trade and investment between the two countries, the UAE and Israel entered into a Double Taxation Avoidance Agreement (DTAA) on Monday 31st May 2021.
It was first tweeted by the Israeli Finance Minister Israel Katz who described the move as a boost to develop business and investment between the two nations after signing the Abraham peace accord last year.
“The agreement will accelerate the development of economic relations and contribute to prosperity in both countries,” Katz said in his tweet.
Katz noted in a briefing that the treaty is primarily based on the OECD model and it will provide certainty and favourable conditions for business activity and will also strengthen the economic ties with the UAE.
The treaty is subject to the parliament and cabinet approval of Israel and is expected to come into force on 1st January 2022. “Israel is a party to 58 double taxation treaties,” Israel’s Finance Ministry remarked.
DTAA being a bilateral agreement, the two countries involved formulate and establish rules that apply to income and assets of the two countries, the Israeli Finance Ministry highlighted on its website.
The UAE has so far concluded 115 double taxation agreements with its trade partners to help avoid similar tax imposition by two countries on the same taxpayer, and for facilitating the exchange of goods, services and capital. It was in 2020 October that the UAE officially announced that it had reached a deal with Israel on avoiding double taxation.
After the peace accord, several commercial agreements have been reached between the two countries and almost USD 280 million in trade treaties were signed within a couple of months. As per reports, the diplomatic and trade normalization between the two countries could give rise to more than USD 4 billion bilateral trade between the two countries.
The UAE also made a revelation saying that it was planning for a USD 10 billion investment fund for the strategic sectors in Israel besides the USD 3 billion joint investment fund established by the UAE, the US and Israel together after the accord.
Finance and economy experts welcomed the tax treaty in anticipation that it would enhance bilateral trade and investment relations in future and promote new company formation in Dubai by Israeli investors.
“Under the agreement, tax deductions, dividends and royalties are capped. The double taxation treaty would make the two countries more competitive and promote economic activity. It will make the two nations more attractive to international investors,” an expert remarked.
As per the experts, the tax treaties between the countries would help promote foreign investment flow between the two countries as investors only invest money after satisfactory earnings after deductible tax playing the most crucial role in foreign investments.
“Having a treaty in place, UAE entities will be able to repatriate returns on investment with a reduced rate of tax from Israel in form of dividend, interest or royalties whereas Israeli businesses will continue to enjoy tax exemptions on their investment in the UAE. This treaty not only will boost investment into the UAE from Israel but also from the global players having investments in Israel to route investment into UAE,” an Industry expert commented.
“We have a huge surge in investment into real estate from Israel whereas UAE outbound investment goes into Israel’s technology and defence sectors. It is a great initiative towards business harmonisation between both the countries, a high-level industry professional remarked.
“In countries that have worldwide taxation, a non-resident citizen who is working in UAE could be liable to pay tax on their income in their home country as well as in the country in which it is earned. UAE being part of an international tax framework, it provides important protection and benefits for UAE companies and expatriates,” emphasized an expert.
To avoid the same income being taxed twice, the UAE has signed double taxation treaties with many countries, as the Government has understood it as unfair and potentially discouraging for international trade and business that could adversely impact future business set up in Dubai and other emirates.
The DTAA however could be tricky and companies and individuals are advised to seek professional help from a reputed and professional accounting firm.