background image
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 Party and paid to a resident of the other Contracting Party may be taxed in that other Party.

(2) However, such interest may also be taxed in the Contracting Party in which it arises and according to the laws of that Party, but if the beneficial owner of the interest is a resident of the other Contracting Party, the tax so charged shall not exceed 5 percent of the gross amount of the interest. The competent authorities of the Contracting Parties shall by mutual agreement settle the mode of application of this limitation.

(3) Notwithstanding the provisions of paragraph 2 of this Article, interest arising in a Contracting Party is exempt from tax in that Party, if it is paid to:

  • (a) in the case of the Hong Kong Special Administrative Region,
    • (i) the Government of the Hong Kong Special Administrative Region;
    • (ii) the Hong Kong Monetary Authority;
    • (iii) any institution set up by the Government of the Hong Kong Special Administrative Region under statutory law such as a corporation, fund, authority, foundation, agency or other similar entity;
    • (iv) any entity established in the Hong Kong Special Administrative Region all the capital of which has been provided by the Government of the Hong Kong Special Administrative Region or any institution as defined in sub-paragraph (a)(iii) of paragraph 3 of this Article;
  • (b) in the case of the United Arab Emirates,
    • (i) the Central Bank of the U.A.E.;
    • (ii) the Abu Dhabi Investment Authority;
    • (iii) the Abu Dhabi Investment Council;
    • (iv) the U.A.E. Investment Authority;
    • (v) the Dubai Government Investment Corporation;
    • (vi) any institution set up by the Government of the United Arab Emirates or local governments under statutory law such as a corporation, fund, authority, foundation, agency or other similar entity;
    • (vii) any entity established in the United Arab Emirates all the capital of which has been provided by the Government of the United Arab Emirates or local governments or any institution as defined in sub-paragraph (b)(vi) of paragraph 3 of this Article.

(4) 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, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

(5) The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting Party, carries on business in the other Contracting Party 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.

(6) Interest shall be deemed to arise in a Contracting Party when the payer is a resident of that Party. Where, however, the person paying the interest, whether he is a resident of a Contracting Party or not, has in a Contracting Party a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the Party in which the permanent establishment is situated.

(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 exceeds, for whatever reasons, 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 Party, due regard being had to the other provisions of this Agreement.