The new income tax treaty between the Czech Republic and the United Arab Emirates was signed on 24 May 2023. Once in force and effective, the new treaty will replace the 1996 tax treaty between the two countries.

Taxes Covered

The treaty covers Czech tax on income of individuals and tax on income of legal persons, and covers UAE income tax and corporate income tax.

Residence

If a person other than an individual is considered resident in both Contracting States, the competent authorities of the Contracting States will determine its residence for the purpose of the treaty through mutual agreement, having regard to its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, such person shall not be entitled to any relief or exemption from tax provided by the treaty.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

• Dividends - 5%
• Interest - 0%
• Royalties - 10%

Capital Gains

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;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares or other interests in a company that is a resident of the other State, unless such gains are derived by a Contracting State or its Government or any political subdivision or local authority thereof, by the Central Bank of a Contracting State, or by any entity directly or indirectly wholly owned by a Contacting State, etc.

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.

Entitlement to Benefits

Article 27 (Miscellaneous Provisions) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force. Once the new treaty is in force and effective, the 1996 tax treaty between the two countries will cease to apply.