When a new treaty changes the rules, make sure you do the smart planning

KEY TAX BENEFITS FOR UAE TAX RESIDENTS

• Reduced tax on dividends

Dividends paid from Russia to a UAE tax resident may be taxed at 10%, instead of the standard 13% / 15% Russian withholding tax.

• Tax-free sale of movable property

The treaty also provides that capital gains from the sale of movable property are taxable only in the state of residence. In practice, this may cover shares and other securities (where the company is not “real-estate rich” in Russia), portfolios of financial instruments, other movable assets that are not Russian real estate.

• Foreign tax credit

The treaty provides for the elimination of double taxation: Russian tax residents now have the right to credit in Russia the corporate tax paid in the UAE, and vice versa.

To apply these benefits in Russia, it will be necessary to obtain and file a UAE Tax Residency Certificate (TRC) for Treaty tax purposes.

CENTRE OF FINANCIAL AND PERSONAL INTERESTS

Even where physical presence is more limited, an individual may be treated as a UAE tax resident if the centre of their financial and personal interests is in the UAE.

This can include:

• place of main employment or business
• location of key assets and investments
• family location
• long-term ties and day-to-day life

Such cases require supporting evidence and are assessed by the FTA based on the overall facts. Also, for all criteria individual should provide Immigration report (Entry and exit report) that currently could be obtained only in person in the UAE.

TYPES OF UAE TAX RESIDENCY CERTIFICATES

The FTA issues two types of certificates:

Both types of certificates could be requested once individual meets any of the eligibility criteria.

PRACTICE, NUANCES AND DAY-COUNT FLEXIBILITY

The formal rules and application process are clearly described in legislation and FTA guidance. However, practice shows that there are nuances. In particular, though the day-count tests (183 and 90 days) are important, in certain situations, other personal and economic circumstances can be taken into account by the FTA when deciding on tax residency and issuing a certificate, especially where the centre of financial and personal interests in the UAE is clear and well documented.

In other words, while 183 days is the most straightforward route, and still the “standard” for many treaty-referenced TRCs, there are situations where a treaty-based certificate may be obtained with fewer days in the UAE, provided the factual background supports UAE tax residency.

We have experience assisting clients with both types of certificates and with different residency routes, including those based on the centre of interests.

OUR RECOMMENDATIONS

Before relying on the treaty, we recommend that individuals:

• Review current and planned tax residency position
• Consider whether any restructuring or changes are advisable in light of the treaty benefits (for example, timing of disposals of movable property, holding structures, or family relocation plans)
• Plan in advance which type of tax residency certificate will be required and when it can realistically be obtained
• Prepare documentation to support day counts and, where relevant, centre of financial and personal interests in the UAE

Thoughtful preparation now can help ensure that the new Russia–UAE treaty works as intended for private clients and that the benefits are available in full.