Israel – UAE Tax Treaty

Business Activity in the UAE

The United Arab Emirates government’s investment initiatives and ambitious projects are creating numerous opportunities and tenders across various key industries, driving economic expansion and innovation. Important opportunities are available in industries, including aerospace and aviation, where technology and infrastructure development are the main focus, and clean tech and environmental technologies, which are a driving force of this country’s sustainability policy.

The defense industry continues to grow in light of growing security demands while design and construction find themselves in a business making a fortune from mega-urban projects. Digital and information communication technology are one of the key engines of the United Arab Emirates’ move towards a knowledge-based economy and health care and life sciences are seeing strong growth, to cater to the mounting demand for advanced medical care. Traditional industries (oil and gas) still play an important role, whereas clean energy and renewable energy projects are in line with the UAE’s green vision. Finally, smart and sustainable mobility initiatives, including electric and autonomous transport systems, showcase the country’s focus on innovation and environmental responsibility.

Bilateral Agreements between Israel and the UAE

• Double Taxation Agreement
• International Investment Agreement

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and the United Arab Emirates regarding avoiding double taxation was signed on May 30, 2021, and entered force on December 31, 2021.

To read the agreement in English, click here.

International Investment Agreement

The Reciprocal Promotion and Protection of Investments (RPPI) was signed on October 19, 2020. The RPPI is an agreement between Israel and the United Arab Emirates that is designed to encourage and safeguard investments made by individuals and companies from each country in the territory of the other. These agreements typically include provisions related to non-discrimination, compensation for expropriation, dispute resolution, and the transfer of funds.

To read the agreement in English, click here.

Applicability of the MLI

Both the United Arab Emirates and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019. United Arab Emirates, on the other hand, affixed its signature to the MLI on June 27, 2018, and its provisions became effective as of September 1, 2019.

Residency for Tax Purposes in the United Arab Emirates

Individuals

According to the tax rules in the UAE, an individual is considered a tax resident if any of the below criteria is met:

• Their main home and financial/personal interests are in the United Arab Emirates.
• They were physically in the United Arab Emirates for 183+ days in 12 months.
• They were in the United Arab Emirates for 90+ days in 12 months and are a United Arab Emirates or GCC national, or hold a United Arab Emirates residence permit, and either have a permanent United Arab Emirates residence or work/business in the United Arab Emirates.

To read about how an individual is considered a resident of Israel, click here. 

Companies

Companies incorporated in the United Arab Emirates, including those in Free Zones, are considered tax residents. Foreign companies can also be treated as residents if managed and controlled in the United Arab Emirates. Non-residents are taxable if they have a permanent establishment, earn United Arab Emirates-sourced income, or derive income from United Arab Emirates immovable property.

To learn how a company is considered a resident of Israel, click here.

The Tax System in the United Arab Emirates

The United Arab Emirates tax authority is called the Federal Tax Authority

Income Taxation: There are no personal income taxes in the UAE

Taxation of Companies and Branches: 0% and 9%

VAT: 5%

Capital Gains Tax: Does not apply

Withholding Tax

Inheritance Tax in the United Arab Emirates

UAE does not apply an inheritance tax.

Relocation to the United Arab Emirates

The United Arab Emirates is a great country to relocate to due to the many advantages it offers. The tax regime in the United Arab Emirates is very friendly to individuals and businesses because it has no income tax, company tax, or tax on dividends.

The United Arab Emirates focuses its national priorities on strategic national objectives and strives to build a safe, secure, and sustainable economy. Investment is arguably the most critical input to building a solid and diversified economy. This approach has led to impressive results, significant progress has been made and top performance has been achieved, which has translated into the average annual GDP increase of 7% of the country over the last 10 years. Foreign direct investment inflows to the United Arab Emirates reached USD 22.737 billion in 2022, an increase of 10% compared to 2021, and ranked 16th globally in UNCTAD 2023 World Investment Report. All the above and more make the United Arab Emirates a perfect place to relocate and invest.

The Jewish Council of the Emirates estimates that around 1,000 Jews currently live in the United Arab Emirates, mainly in Dubai. The United Arab Emirates hosts Jewish expatriates from various countries who practice different denominations of Judaism. The Jewish Council of the Emirates is the first new Jewish community to be founded in the Arab world in over 100 years.

Real Estate Taxation in the United Arab Emirates

There are no real property taxes in the UAE. However, a registration fee at a rate of 2% (up to 4% in Dubai) of the sales price is levied on the transfer of land or property.

Transfer of Funds from Israel to the United Arab Emirates

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax. 

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more. 

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us. 

For more information on money transfers abroad, click here. 

Types of Business Entities in the United Arab Emirates

The Most Common Companies in The United Arab Emirates are:

Sole Proprietorship: A company of this type is owned by an individual who controls all its activities and holds all of its stocks. This is the simplest form of business entity in the United Arab Emirates. A foreigner can establish this entity if he holds a residency permit, but only citizens of the United Arab Emirates can establish this entity in its commercial or industrial form. If a non-citizen wants to establish this entity, he can appoint a local service agent who will open the company on his behalf. There is no minimum capital requirement for this type of entity, and the company name must be related to its business activities.

Limited Liability Company: The most common business structure in the United Arab Emirates is a limited liability company because it offers a degree of protection to the partners by limiting their liability to the extent of their investment in the company. This means that the creditors of the company cannot go after the personal assets of the partners to recover any outstanding debts. A non-citizen of the United Arab Emirates can establish such a company and hold only up to 49% of the share capital, the remaining 51% is required to be held by a citizen of the United Arab Emirates. The minimum number of investors in this type of company is 2, and the maximum is 50. LLCs can engage in various industrial or commercial activities but are generally restricted from providing consulting services, except for those related to banking, insurance, or investment.

Private Stock Holding Company: Also known as a Private Joint Stock holding Company. The minimum capital required to establish such a company is 5 million AED with a minimum of 3 investors. At least 51% of the stocks must be owned by a United Arab Emirates citizen. It should be noted that approval from the Ministry of Economy is required to establish this type of business entity.

Public Stock Holding Company: Also known as a Public Joint Stock Holding Company. The minimum capital required to establish the company is 30 million AED with tradable shares, and each shareholder is only responsible for their share of the capital. The company can have a maximum of 5 directors, and at least 5 founding members who are United Arab Emirates citizens which will hold a minimum of 30% and a maximum of 70% of the company’s stocks.

Incentive Laws in the United Arab Emirates

United Arab Emirates businesses can claim a foreign tax credit for taxes paid abroad, but it is limited to the amount of Corporate Tax owed in the United Arab Emirates. Small businesses with annual revenue under AED 3 million (until 2026) may be exempt from Corporate Income Tax. Tax relief is also available for asset transfers between companies within the same group, with a two-year recovery period. Mergers and spin-offs may qualify for tax relief if they are for valid commercial reasons, and also subject to a two-year recovery.

Companies based in Free Zones can qualify for a 0% corporate income tax rate if they meet specific conditions like conducting qualifying activities and maintaining adequate substance, such as employees and assets. Qualifying income includes income from Free Zone transactions, manufacturing, trading, and intellectual property. However, certain activities like banking or owning property outside Free Zones are excluded from tax relief.

Lastly, a Free Zone company with a presence outside the zone may be taxed at 9% as a domestic Permanent Establishment (PE) but can still benefit from the 0% corporate income tax rate on qualifying income.

United Arab Emirates Double Tax Treaties