Russia and the United Arab Emirates (UAE) are preparing to sign a double taxation avoidance agreement (DTA), under which they will set a tax rate of 10% on income from dividends, interest and royalties, Secretary to Deputy Finance Minister Alexei Sazanov told Vedomosti. According to him, the document will be signed in the first half of 2025. Sazanov noted that the agreement is designed “to help increase the inflow of foreign investment and not lead to a decrease in the national tax base.”
Reasons for the agreement
Russia offered the Emirates to conclude an agreement back in 2022, when more than 30 countries imposed large-scale sanctions for the war in Ukraine. Until recently, the UAE authorities discussed the terms of the agreement, including the amount of tax on passive income. The Ministry of Finance of the Russian Federation previously reported that the new agreement will apply not only to state-owned companies and organizations, but also to private businesses, as well as individuals. “We will do everything possible” for the agreement to enter into force on January 1 next year. Currently, a 2011 agreement is in force between Russia and the UAE, which provides benefits only to government agencies, state-owned organizations and sovereign funds.
Moving business from Cyprus to the UAE
At the same time, the Emirates are still included in the “black list” of penal zones of the Ministry of Finance of the Russian Federation. The exclusion of the UAE from this stop list will be a “really important consequence” of concluding a new agreement, says Sergey Chelyshkov, partner at the MEF Legal law firm. He recalled that after the sanctions were imposed, Russian businesses were actively transferring their structures from Cyprus and other EU offshore companies to the UAE. According to Delovaya Rossiya, in 2022, about 700 Russian organizations registered a second legal entity in the Emirates, which is almost 7 times more than in 2021.
An era has passed: Cyprus is losing its status as Russia’s main offshore company
For example, Cyprus has become one of the most popular offshore destinations for Russian companies and individuals since the early 1990s. In 1997, Russia and Cyprus signed a double taxation agreement, which made the island attractive to investors by providing tax incentives and transparent business conditions. In the period from 2000 to 2010, the Republic of Cyprus became the main financial center for Russian entrepreneurs due to low income taxes (12.5%), tax benefits on dividends and the absence of capital gains tax.
This status remained in place until 2017, when the EU began to increase pressure on Cyprus due to its role as an offshore company. In 2017, the EU recognized Cyprus as one of the tax havens, which led to a number of legislative changes. After that, Cyprus had to amend its legislation to comply with EU standards on combating tax evasion and improve the transparency of financial transactions.
