UAE tax treaties surge 40 per cent as wealth funds rise

Increase in double taxation agreements with global trading partners comes as regional sovereign wealth funds look to reduce tax risks when investing overseas.

UAE’s double taxation pacts this year include Japan, Mexico, Fiji, Panama and Latvia. Silvia Razgova / The National

The UAE is accelerating tax treaties with trading partners as global jurisdictions fight to win a greater share of taxable income from foreign investors.

The number of double taxation treaties signed between the UAE and other countries has surged by more than 40 per cent in the past four years, and tax experts expect the trend to continue.

Tax matters are growing in importance for regional sovereign wealth funds that deploy billions of dollars overseas in typically long-term investments that by their nature carry future taxation-related risk.

“As sovereign wealth funds want to expand to other places around the globe they need to have some certainty as to what the tax rules are between the two countries,” said Greg Wiebe, the global head of tax at KPMG.

This year the UAE has struck double taxation treaties with countries that include Japan, Mexico, Fiji, Panama and Latvia.

Arabian Gulf sovereign wealth funds have built assets worth hundreds of billions of dollars worldwide across multiple asset classes.

“Most countries, including the United States, have statutory provisions that eliminate taxation of interest and dividends paid to foreign sovereign entities,” said Gary Hufbauer, a senior fellow of the Peterson Institute for International Economics in Washington. “However, statutes can be changed. Treaties are more durable.”

Tax is fast becoming the latest battleground for governments around the world attempting to plug budget deficits at home by increasing their tax take without raising headline rates.

“Most economies are struggling with deficits and the tax authorities are charged with maintaining the revenue source for their country,” said Mr Wiebe.

“So they are looking at the value-chain businesses create around the world to ensure that the value created in that country is taxed in that country.”

Growing uncertainty over future taxation liabilities has become a concern for regional sovereign wealth funds eyeing investments abroad and is now fuelling a flurry of double taxation treaties.

It comes amid a global tug of war between jurisdictions buckling under budgetary pressures and seeking ways to capture more taxable income without creating further austerity.