Double Taxes are similar taxes imposed on a single taxpayer base in two countries, impeding the seamless flow of goods, services, capital, technology, and trade across borders. Public and private entities, investment organizations, aviation enterprises, and a plethora of businesses operating within the UAE, in conjunction with residents, reap the benefits of strategies to mitigate double taxation under “Double Tax Treaties” in alignment with the UAE's commitment to bolster its international stature. The Ministry of Finance is actively broadening its realm of Double Taxation Bilateral Investment Treaties (BIT) and Double Tax Treaties (DTTs) for this purpose. This strategic pursuit has culminated in the successful negotiation and finalization of 193 Double Tax Treaties (DTTs) and BITs. The core focus of these accords is two-fold: firstly, to alleviate or minimize taxes on investments and profits spanning direct and indirect tax categories, and secondly, to erect a protective barrier against non-commercial risks that might imperil various types of investments. This approach ensures the unhindered transfer of gains in universally recognized convertible currencies.
Objectives and Accomplishments Of the Double Tax Treaty
- Mitigation of Double Tax: For the pursuit of advancing its developmental objectives, the UAE has effectively concluded 137 Avoidance of Double Tax Treaties (DTTs) with the majority of its trading partners.
- Formation of the Global Forum: Created in 2009 under the aegis of the G20 and OECD, the Global Forum on Transparency and Exchange of Information for Tax Purposes assumes utmost importance as the primary international body devoted to enforcing global standards for sharing information.
- Impetus for International Cooperation: Response, heightened international collaboration in information exchange became a necessity, a vital tool to thwart efforts by tax evaders to cloak their assets and wealth. This imperative led to the establishment of legal references through bilateral agreements, designed to curb double taxation and enable nations to seamlessly share such crucial information.
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For Strengthening Collaboration of UAE Active Participation World Wide
Ministerial Resolution No. 4/454 of 2010 has provided Services guidance for the UAE to secure a role within the World Wide Scenario. This forum evaluates nations based on their adherence to transparency and information exchange standards, facilitated by the Peer Review Committee, operating in two distinct phases.
Phase 1: Initial assessment centres on the legal and structural frameworks governing the exchange of information process.
Phase 2: Subsequent stages encompass the practical implementation of information exchange and transparency principles in compliance with international benchmarks, evaluating the alignment of laws with the forum's guiding criteria.
The forum welcomes participation from all nations, categorizing them based on their transparency commitment:
- White List: Nations wholeheartedly dedicated to standards implementation.
- Grey List: Countries striving to implement standards, requiring technical support.
- Black List: Nations not aligned with standards implementation.
Nations failing to uphold transparency standards face the risk of missing out on investments from G20 Industrial Nations.
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UAE's Partnership and Engagement
- The Ministry of Finance engaged in a collaborative effort with OECD, formalizing cooperation on taxation matters through the signing of an MoU.
- Leveraging its strategic position, the UAE emerged as a regional training hub in the MENA region, nurturing a network of tax experts.
Global Transparency Endeavors
Since 2010, the UAE has been an active and integral participant in the Global Forum on Transparency.
Tax Transparency Progress
- Systematic Review
- Commencing in 2011, the UAE embarked on a systematic evaluation of tax transparency.
- Achieving commendable results, the UAE diligently presented essential legal documentation.
- Steering Committee Achievement
- Demonstrating pioneering prowess, the UAE secured a seat on the International Steering Committee.
- Progression Recognition
- The Global Forum acknowledged the UAE's advancement, green-lighting its progression to the second evaluation phase, scheduled for completion by 2017.
- Formalized Commitment
- The Ministry of Finance further solidified its commitment by formalizing an MoU with the Global Forum Secretariat, outlining and adhering to transparency standards.
- Stakeholder Engagement
- Proactive engagement ensued, as MoF collaborated with local stakeholders, providing guidance to translate recommendations from the 'Evaluation of the UAE' information exchange report into practical implementation.
Government Directive Influence
- Legal Empowerment
- MoF's concerted actions find legal footing in Cabinet Resolution No. 17 of 2012, which empowers the ministry to collect and exchange information pertaining to entities within the UAE, including free zones.
Enhancing and Safeguarding Investments
- Bilateral Investment Treaties (BIT)
- Envisioning the realization of developmental aspirations, the UAE proactively entered into 106 Bilateral Investment Treaties (BIT) with a substantial array of trade counterparts.
- Multi-Faceted Goals
- These meticulous treaties encompass multifaceted objectives, including:
- Risk Mitigation: Shielding investments against non-commercial for instance, freezing, sequestration, nationalization, expropriation,
- Investment Facilitation: Streamlining the establishment and authorization of investments.
- Profit Transfer Assurance: Guaranteeing unimpeded transfer of profits and other returns in universally recognized and exchangeable currencies.
- Treatment Equivalence: Extending investors the privilege of national and most favored nation treatment for effective investment management, upkeep, and growth.
- Equitable Compensation: Double taxation treaties ensure the timely assurance of equitable compensation.
- These meticulous treaties encompass multifaceted objectives, including:
- Ensuring prompt and fair compensation for investors in cases of investment expropriation for public interest. The compensation aligns with impartial legal norms and equates to the investment's fair market value before expropriation.
- Resolution of Disputes: Elaborating on thorough procedures aimed at efficiently settling conflicts that might emerge between investors and the State.
This proactive approach towards safeguarding and promoting investments through meticulously structured Double Tax Treaties (DTTs) and Bilateral Investment Treaties underscores the UAE's commitment to fostering a conducive environment for sustainable economic growth and international collaboration.
In conclusion, the UAE's commitment to expanding its Double Taxation Agreements, its active engagement in the Global Forum on Transparency, and its strategic initiatives towards safeguarding and promoting investments emphasize its dedication to transparent and fair international economic practices. Through its collaborative efforts, the UAE aims not only to strengthen its global position but also to contribute to a framework that facilitates trade, investment, and economic stability on a global scale. For more information contact our Tax Consultant in Dubai