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Note: This Treaty may be impacted by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). MLI impact on Tax Treaties is available with the Orbitax International Tax Research & Compliance Expert.

ARTICLE 11

Interest

(1) Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed in that other State.

(2) However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State and at least one of the conditions mentioned in paragraph 3 is met, that interest shall be taxable only in that other State.

(3) The conditions mentioned in paragraph 2 are that:

  • (a) the interest is beneficially owned by:
    • (i) that other State itself, one of its political subdivisions, local governments, local authorities, its Central Bank, or its statutory bodies;
    • (ii) an individual;
    • (iii) a company in whose principal class of shares there is substantial and regular trading on a recognised stock exchange;
    • (iv) a pension scheme; or
    • (v) a financial institution which is unrelated to and dealing wholly independently with the payer (the term "financial institution" here means a bank or other enterprise substantially deriving its profits by raising debt finance in the financial markets or by taking deposits at interest and using those funds in carrying on a business of providing finance);
    • (vi) a company other than a company mentioned under sub-paragraphs (iii), (iv) or (v) provided that the competent authority of the Contracting Party which has to grant the benefits determines that the establishment, acquisition or maintenance of the company does not have as its main purpose or one of its main purposes to secure the benefits of this Article; or
  • (b) the interest is paid by a Contracting State, one of its political subdivisions, local governments, local authorities or statutory bodies.

(4) For the purposes of paragraph 3 (a)(i), the term "statutory bodies" includes any institution wholly or mainly owned directly or indirectly by the Government of either Contracting State as may be agreed from time to time by exchange of letters between the competent authorities of the Contracting States; and, in the case of the United Arab Emirates, includes the Abu Dhabi Investment Authority and the Investment Corporation of Dubai.

(5) The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures. The term shall not include any item which is treated as a dividend under the provisions of Article 10.

(6) The provisions of paragraph 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

(7) Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest paid exceeds, for whatever reason, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

(8) No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.