The United Arab Emirates (UAE) and Luxembourg reached a second protocol to their common Income Tax Convention, which has been approved by the UAE cabinet as well as the luxembourgish Council of Ministers. This protocol gives incentives to investment from both sides : reciprocal advantages and efficient exchange information. The main provisions are about :
1) Capital gains
Paragraph 4 of Article 13 (Capital Gains) of the Treaty is amended by article 1 of the new Protocol, which now precisely mentions gains from bonds, securities and alienation of shares. The associated gains are only subject to tax in the State where the seller resides.
2) Elimination of double taxation
The protocol states that a Luxembourg resident’s income or capital taxable under UAE law is exempt from tax in Luxembourg. If such income comes from a permanent establishment in the UAE that is engaged in industry, infrastructure, agriculture or tourism, it will not be taxable in Luxembourg even if no tax has been paid in the UAE provided that at least 10% of the capital of the UAE company is directly held by the recipient and that this company is taxable in the UAE corresponding to the Luxembourg corporate income tax. Similarly, a company whose seat is in Luxembourg receiving dividends from the UAE is not subject to tax on these gains in Luxembourg.
Luxembourg & UAE Eliminate Double Taxation
3) International information exchange
The protocol largely brings the treaty in line with international standards for transparency of the Organisation for Economic Co-operation and Development (OECD) : availability, appropriate access and exchange of information. Article 5 of the Protocol outlines the standard of foreseeable relevance of the information to be requested from the competent authorities.
4) Cooperation in the field of Islamic banking services
Cooperation in the field of Islamic banking services is now inscribed in a Memorandum of Understanding signed by both countries. Luxembourg and the UAE recognise their growing role in that field, which has become part of the global financial system for years.
For further information
This protocol brings good news to all investors interested in opening a company in the UAE. Our lawyers can provide you with detailed information and necessary incorporation procedures.
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