• A Closer Look to the UAE-Luxembourg DTT
  • August 17, 2010
  • Law Firm: Wildgen Partners in Law - Luxembourg Office
  • In Luxembourg, the treaty applies as follows:

    • for withholding taxes, to revenue received on or after January 1, 2010;

    • for corporate and wealth taxes, to taxes due for whole tax years starting on or after January 1, 2010; and

    • for provisions relating to international transport, retroactively from January 1, 2000.

    Dividends

    The rate of withholding tax on dividends, if any, paid by a company that is resident in one contracting state to a resident of the other contracting state may not exceed:

    • 5 percent of the gross amount of the dividend if the beneficial owner is a company  (other than a partnership) that directly holds at least 10 percent of the company paying the dividends (with no minimum holding period); or

    • 10 percent of the gross amount of the dividends in other situations.

    Interest & Royalties

    Interest arising in one contracting state that is paid to a resident of the other contracting state may be taxed in the other state. Luxembourg does not levy withholding tax on interest except in very specific situations. The UAE does not levy any withholding tax on interest.

    Royalties arising in one contracting state that are beneficially owned by a resident of the other contracting state are taxable only in the other state. Neither Luxembourg nor the U.A.E. levies withholding tax on royalties.

    Capital Gains

    If the general rule is that capital gains are subject to tax in the state of residence of the seller, the treaty provides for the following exceptions:

    • gains derived by a resident of one contracting state from the alienation of immovable property located in the other contracting state may be taxed in the other state;

    • gains from the alienation of movable property allocated to a permanent establishment that an enterprise of one contracting state has in the other contracting state may be taxed in the other state; and

    • gains from the alienation of ships or aircraft operated in international traffic or of moveable property relating to the operation of such ships or aircraft may be taxed in the jurisdiction in which the place of effective management of the enterprise is located.

    Methods for Elimination of Double Taxation

    The U.A.E. uses the credit method for all income. Luxembourg uses the exemption with progression method for most types of income and the credit method for business profits, dividends, gains from the alienation of movable property allocated to a PE that an enterprise of one contracting state has in the other contracting state, and income earned by artists and athletes.

    Exchange of Information

    The treaty contains an exchange of information clause similar to the one in the OECD model, with the proviso that the exchange of information is limited to taxes mentioned in the treaty.

    Consequently, it does not extend to private wealth management companies (sociétés de gestion de patrimoine familial, or SPFs).

    However, an exemption from Luxembourg withholding tax on dividends paid to corporate shareholders in a treaty country may apply based on domestic law. The U.A.E. does not levy withholding tax on dividends.