The Russian Federation and The UAE sign a new double taxation treaty
Corparate and Private Clients | Tax Alert
6 March 2025
6 March 2025
Treaty status
The Russian Federation and the UAE signed a new agreement on the avoidance of double taxation (the “Agreement”) on February 17, 2025. According to the Russian Ministry of Finance, the parties will make every effort to ensure that the document enters into force from 1 January 2026.
The Russian Government has recently published the draft of the Russian version of the Agreement. The Agreement has been signed in three languages (Russian, Arabic and English), in case of any discrepancies in wording, the English version will prevail.
The Russian Federation and the UAE signed a new agreement on the avoidance of double taxation (the “Agreement”) on February 17, 2025. According to the Russian Ministry of Finance, the parties will make every effort to ensure that the document enters into force from 1 January 2026.
The Russian Government has recently published the draft of the Russian version of the Agreement. The Agreement has been signed in three languages (Russian, Arabic and English), in case of any discrepancies in wording, the English version will prevail.
Overview of the Agreement
The Agreement will apply to residents of the two countries, both individuals and legal entities. Companies taxable at a 0% corporate tax rate in the UAE should also generally be able to enjoy the benefits envisaged by the Agreement. The Agreement covers income taxes and property taxes.
The current double tax treaty between our countries applies only to governmental companies and institutions.
The benefits under the Agreement will not be granted if their receipt is the main purpose (or one of the main purposes) of the transaction or operation.
Persons who receive income through transparent entities will be able to enjoy tax benefits provided by the Agreement. This provision is essential in case of income payments to fiscally transparent entities in the UAE (e.g. partnerships, family foundations, etc.).
As it was previously announced, the maximum withholding tax rate on dividend income, interest income and royalties will be 10%. Unlike some agreements with other countries in the Middle East, the tax rate applicable to dividend income does not depend on the ownership percentage in the company paying the dividends.
Further we discuss some important issues addressed in the Agreement and implications for businesses and individuals.
The Agreement will apply to residents of the two countries, both individuals and legal entities. Companies taxable at a 0% corporate tax rate in the UAE should also generally be able to enjoy the benefits envisaged by the Agreement. The Agreement covers income taxes and property taxes.
The current double tax treaty between our countries applies only to governmental companies and institutions.
The benefits under the Agreement will not be granted if their receipt is the main purpose (or one of the main purposes) of the transaction or operation.
Persons who receive income through transparent entities will be able to enjoy tax benefits provided by the Agreement. This provision is essential in case of income payments to fiscally transparent entities in the UAE (e.g. partnerships, family foundations, etc.).
As it was previously announced, the maximum withholding tax rate on dividend income, interest income and royalties will be 10%. Unlike some agreements with other countries in the Middle East, the tax rate applicable to dividend income does not depend on the ownership percentage in the company paying the dividends.
Further we discuss some important issues addressed in the Agreement and implications for businesses and individuals.
For the purposes of avoiding double taxation, two countries have agreed upon the following way of determining tax residence:
- In respect of companies - depending on the location of the head or principal office, place of effective management, place of establishment or formation.
- In respect of individuals - in the following order (i) the location of the permanent home, (ii) the location of the “centre of vital interests”, (iii) the place of habitual abode, (iv) citizenship.
Income from business activity is taxed at the place of residence of the company (unless the activity is conducted through a permanent establishment), which may avoid withholding tax in Russia, for example, on income from the provision of intragroup services.
In terms of the concept of permanent establishment, the following should be emphasized:
- The allocation of profits and expenses between the head office and the permanent establishment should be based on the arm’s length principle.
- Activity of a dependent agent may constitute a permanent establishment not only if it enters into contracts on behalf of another person, but also if it usually plays the main role leading to the conclusion of contracts.
- A dependent agent is, inter alia, an agent who is a person closely related to the foreign principal (i.e. a person that has ownership interest or in which the same other person has ownership interest of 50% or more).
- The construction site forms a permanent establishment if it has existed for more than 12 months.
- The provision of services, including consultancy services, through hired or other personnel forms a permanent establishment if such activity has been carried out for more than six months during any 12 months period.
- Income from immovable property under the Agreement may be taxed in the state where such property is located.
- Similarly, capital gains from alienation of shares or interests, and similar rights, including interests in a partnership, trust, or collective investment vehicles, 50% of assets of which constitute immovable property (at any time during the 365 days preceding the transaction) may be taxed in the state where the immovable property is located. An exception is made for companies whose shares are traded on a recognized stock exchange and the investor holds not more than 5% of the shares of such company. A recognized stock exchange is an exchange in one of the contracting states; other exchanges may be agreed upon by the competent authorities.
Income from international transportation is taxable only in the state of tax residence of the carrier (which will exclude withholding tax in Russia according to the rules of Clause 8, Paragraph 1, Article 309 of the Tax Code of the Russian Federation). Likewise, income of organizations engaged in international transportation from the alienation of vessels or aircraft is taxable only in the state of tax residence of the recipient of income.
It should be noted that dividends for the purposes of the Agreement include, in additional from dividends):
- Income from distribution of additional paid-in capital.
- Income from reduction of the share capital.
- Income from other rights, other than debt obligations, entitling the holder to profit participation rights.
- Income paid in the form of interest, which is subject to the same tax treatment as dividends in accordance with the tax laws of the state of the company distributing the profits.
- Any payments on shares of collective investment vehicles (except for real estate funds or similar investment structures established for investment in real estate).
- For the purposes of the Agreement, income from employment in a contracting state includes remote work under an employment contract with an employer who is a resident of that state, as well as the rendering of services under a service agreement remotely, when the services are rendered to a person who is a resident of that state, without regard to the actual presence of the employee (or a service provider) in that state.
- Directors’ fees as well as income derived by artists and sportsmen may be taxed in the state of payment of income (except for income of artists and sportsmen connected with a visit to a contracting state financed by a public fund).
- Pensions are taxable only in the state of payment of such pensions.
- Income derived by professors and scholars is exempt from taxation in the other state for a period of 2 years from the date of arrival in the other state for teaching and/or conducting research.
All other income not specifically agreed upon by the parties may be subject to withholding tax.
The Agreement sets forth the procedure for the elimination of double taxation through the credit method, the provision on non-discrimination, the possibility to apply for a mutual agreement procedure, and the procedure for the exchange of information between the competent authorities.
It should be noted that the Protocol to the Agreement provides that the certificate of residence issued by the competent authority will not require legalization or apostille.
What additional impact the Agreement will have
The conclusion of the Agreement is expected to result in the removal of the UAE from the list of low tax jurisdictions that do not exchange information by the Ministry of Finance of Russia, which will entail:
The conclusion of the Agreement is expected to result in the removal of the UAE from the list of low tax jurisdictions that do not exchange information by the Ministry of Finance of Russia, which will entail:
- Changes in the procedure for preparing transfer pricing documentation
- Russian companies should be able to apply a 0% rate when selling shares of the UAE companies and receiving dividends subject to certain conditions
How BaOne can help
- Advising on the application of the provisions of the Agreement to individuals and companies in the UAE and Russia
- Assisting in obtaining tax residency certificate and other necessary documents in UAE and Russia
- Assisting in developing of tax strategies taking into account the changes as of 1 January 2026
- Assessing the impact of the Agreement on the existing structures and situations of individuals in the UAE and Russia
- Planning of individuals' residency and tax structuring of individuals' assets taking into account the provisions of the Agreement
- Assessing the tax implications that may arise in the event of redomiciliation of a company in the UAE
BaOne Team
BaOne's experts are ready to help you navigate the matters regarding the application of the Agreement or other issues. We can be contacted via info@baone.ae or by contacting the specialists directly.
BaOne's experts are ready to help you navigate the matters regarding the application of the Agreement or other issues. We can be contacted via info@baone.ae or by contacting the specialists directly.
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