Growing Double Tax Treaty (DTT) network of UAE

31 July - In the first half of the year 2024, the United Arab Emirates (UAE) signed the Double Tax Treaty (DTT) with three countries which are part of the Gulf Cooperation Council (GCC), namely the State of Kuwait and the Kingdom of Bahrain in February 2024, and the State of Qatar in May 2024.

On 14 July 2024, the Government of Kuwait formally endorsed the UAE-Kuwait Double Taxation Avoidance Agreement (DTAA) (the Agreement) via Decree No. 7 of 2024. The Agreement, signed by governmental representatives from both countries on 11 February 2024, will take effect from 1 January of the year following its entry into force. The Agreement will become effective once both nations complete their respective legislative procedures and notify each other accordingly. Once effective, Kuwait will be the second country in the GCC to have an in-force DTT with the UAE after the Kingdom of Saudi Arabia. While the UAE has signed a DTT with Bahrain and Qatar, these are not yet effective as of the date of this tax alert.

The primary objective of the Agreement is to foster a robust financial, economic, and investment partnership between the UAE and Kuwait.

Taxes Covered by the Agreement

As per Article 1, all residents (individuals and entities) of the UAE and Kuwait are covered by the Agreement. According to Article 2, the types of taxes covered are outlined as follows:

The UAE:

• Income Tax
• Corporate Tax

Kuwait:

• Income Tax Decree No. 3 of 1955, as amended by Law No. 2 of 2008
• The Kuwaiti Income Tax Law (Designated Region) No. 23 of 1961
• Act No. 19 of 2000 on Support and Encouragement of National Employment for Non-Governmental Organizations (National Labor Support Tax [NLST])

Avoidance of Double Taxation

In accordance with Article 24, the treaty provisions aim to avoid double taxation for residents with income or capital gains that may be subject to taxes in both the UAE and Kuwait. The country of residence will allow a deduction, equal to the tax paid in the source State, from income and capital taxes on such income. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income derived from that other State.

Summary

The UAE and Kuwait have taken a significant step in strengthening their financial relations by signing an Agreement to avoid double taxation on income and capital. By providing clarity on tax matters and preventing double taxation, this treaty aims to facilitate cross-border economic activities and contribute to the sustainable development of both nations.

We will provide further updates and details on the applicability of the treaty provisions for companies in the UAE soon.

Deloitte’s Recommendation for Companies in the UAE

We recommend that companies review the potential impact of the new tax treaty between the UAE and Kuwait. Deloitte is prepared to assist companies in assessing how the concluded agreement may affect their business operations and will keep you informed of further developments regarding the UAE's evolving tax landscape.

We also recommend keeping an eye on further updates regarding the ratification of DTAs with Bahrain and Qatar.

Contacts

We have a dedicated Business Tax team based in the UAE who have in-depth experience and can support you throughout your readiness journey. Please get in touch with one of our tax experts listed on the following page.

You can also contact us and submit all your queries on this email cituae@deloitte.com.