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Tax Treaty between the UAE and Zimbabwe has Entered into Force — Orbitax Tax News & Alerts

According to a recent update from the UAE Ministry of Finance, the income tax treaty with Zimbabwe entered into force on 7 February 2021. The treaty, signed 16 June 2018, is the first of its kind between the two countries.

Taxes Covered

The treaty covers UAE income tax and corporate tax, and covers Zimbabwe income tax, non-residents' shareholders' tax, non-residents' tax on interest, non-residents' tax on fees, non-residents' tax on royalties, and capital gains tax.

Income from Hydrocarbons

Article 3 (Income from Hydrocarbons) provides that, notwithstanding any other provision of the treaty, nothing shall affect the right of either one of the Contracting States, or of any of their local governments or local authorities thereof to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State, as the case may be.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months.

Limited Force of Attraction Provision

Article 8 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting State by a resident of the other State if the same or similar goods or merchandise or business activities are also sold or carried out by a permanent establishment maintained by that resident in the first-mentioned Contracting State.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 0%
  • Royalties - 9%
  • Fees for technical services (managerial, technical, or consultancy) - 6%

Limitation on Benefits

The treaty relief provided under Articles 11 (Dividends), 12 (Interest), and 13 (Royalties) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the Articles.

Capital Gains

Article 15 (Capital Gains) provides that the following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.

Article 15 also provides that the provisions of the article shall not apply if the beneficial owner of the income is the State itself, local government, local authority or their financial institutions, in which case such income shall be subject to tax in the state of residence.

Unlike most treaties, the UAE-Zimbabwe treaty does not include the explicit provision that gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January of the year in which it was signed, i.e., from 1 January 2018.