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Tax Flash: UAE - KSA Double Tax Treaty

Tax Flash: UAE - KSA Double Tax Treaty

In May 2018, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) signed the Double Tax Treaty (DTT). It is expected to further boost cross-border trade and investment between these two countries.

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UAE - KSA Double Tax Treaty

What it is

In May 2018, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) signed the Double Tax Treaty (DTT). It is expected to further boost cross-border trade and investment between these two countries. The DTT is expected to apply from 1 January 2020 onwards, assuming it enters into force prior to end of November 2019. On 1 March 2019 KSA published in its Official Gazette (Umm Al Qura) the ratified text of the DTT. UAE is yet to ratify and publish the DTT in its Federal Official Gazette.

What it does

The DTT overrides each country’s domestic tax legislation in respect of many income tax (corporate and personal) and withholding tax matters and generally provides a more favorable tax treatment. It will also provide taxpayers and withholding tax agents in KSA with greater certainty. The DTT is largely in line with the other DTTs signed by KSA or the UAE, but with its own specifics. This DTT is the first that has been concluded within Gulf Cooperation Council (KSA, UAE, Oman, Bahrain, Kuwait, Qatar).

 The following matters in the DTT are particularly important:

 - “resident” rules and applicability of the DTT to UAE and KSA residents, including any special cases and “tie-breaker” rules in case of dual tax residence;

 - permanent establishment (“PE”) rules, including “service PE” and “dependent agent” concepts, PE exemptions with exceptions for “cohesive operations” etc.;

 - “force of attraction” rules meaning that KSA income taxation may extend to incomes from direct supply of goods/services from UAE to KSA in cases where there is a PE in KSA with similar goods/services supplied locally;

 - non-taxation of normal business profits (e.g. service fees) from KSA where there is no PE in KSA under the DTT;  

 - non-taxation of income from the operation of ships, aircraft or road vehicles in international traffic;

 - withholding taxes for dividends, interest, royalties. Under the DTT, the maximum rates of withholding tax are:

  • 5% on dividends;

  • 0% on interest; and

  • 10% on royalties.

- anti-abuse provisions under the DTT and BEPS commitments of both countries to be satisfied in order to benefit from the DTT.

Implications for you

The DTT may reduce taxation of UAE residents in KSA. As the DTT will override domestic KSA tax legislation, for UAE recipients of incomes from KSA it is important to consider the DTT impact starting in 2020 on the current domestic KSA tax treatment. UAE-based residents and groups, as well as multinational groups with UAE bases/hubs, will need to revisit the existing arrangements for KSA, in particular, the following:


-         direct structures from UAE into KSA;
-         indirect structures from a third country into KSA while having UAE base/hub;
-         holding/investment structures;
-         financing/licensing arrangements;
-         direct goods trade/marketing;
-         service provision.

© 2019 KPMG Lower Gulf Limited, registered in the UAE and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the United Arab Emirates. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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