UAE Law and Practice Contributed by: Arsalan Tariq, Nil Acar and Ahmed Kamran, BSA LAW
relevant authority. Registration typically attracts nominal administrative fees, which vary depending on the asset type and the emirate. • Notarisation requirements – some documents, notably real estate mortgages and personal or corporate guarantees, may need to be notarised, particularly in onshore UAE. Notarisation fees differ between emirates and are usually calculated based on the value of the obligations secured or guaran- teed. • Corporate tax considerations – as of June 2023, the UAE has implemented a federal corporate tax regime. While lenders are generally not subject to UAE corporate tax merely by receiving inter- est payments from UAE borrowers, borrowers must consider whether interest expenses are tax-deductible. Deductions are subject to a the general interest deduction limitation rules (eg, 30% of EBITDA threshold and AED12 million de minimis threshold), and additional rules may apply where the lender is a related party, including transfer pric- ing and arm’s length documentation requirements. • VAT – the UAE levies VAT at a standard rate of 5%. Most financial services, including interest on loans, are exempt from VAT. However, VAT may be chargeable on certain transaction-related fees such as arrangement fees, commitment fees or agency services if they fall within the scope of taxable sup- plies. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders Foreign lenders face minimal direct tax exposure in the UAE, as the UAE jurisdiction currently imposes a 0% withholding tax on outbound payments, including interest, to non-resident lenders, provided the interest is not attributable to a UAE permanent establishment of the lender. The law allows for the withholding tax rate to be changed by Cabinet Decision. If the rate increases in the future, interest payments to foreign lenders could become subject to withholding tax, increasing the cost of borrowing. Accordingly, there are no specific UAE tax concerns associated with foreign or non-money centre bank lenders from a purely domestic perspective.
The UAE has an extensive Double Taxation Agree- ments (DTA) network. If the foreign lender’s jurisdic- tion has a DTA with the UAE, the treaty may limit the UAE’s right to tax interest or provide relief from double taxation. However, several indirect considerations arise. • Corporate tax nexus risk – a key concern for for- eign lenders is avoiding a permanent establishment (PE) or “nexus” in the UAE that could trigger UAE corporate tax liabilities. This is generally not an issue where the lender operates entirely offshore and deals at arm’s length. However, caution is war- ranted where lending activity is structured through UAE branches or involves repeat transactions within the UAE. • Transfer pricing compliance – where the lender is a related party to the UAE borrower, transfer pricing rules under the UAE corporate tax law may apply. This requires arm’s length pricing and potential documentation obligations under OECD-aligned principles. • Local regulatory restrictions – non-UAE licensed entities must ensure compliance with the UAE Cen- tral Bank regulations when lending into the UAE, particularly where lending to consumers or in local currency. Although these are regulatory rather than tax concerns, failure to comply could have indirect financial and tax implications. Mitigation Strategies: • structure loans through special purpose vehicles (SPVs) based in tax treaty jurisdictions, where applicable; • ensure documentation of arm’s length terms for related-party transactions; • avoid operational presence to reduce the risk of tax nexus creation; • review the relevant DTA between the UAE and the lender’s jurisdiction to confirm the applicable with- holding tax rate and relief mechanisms; and • avoid using related-party loans for transactions that could trigger the specific anti-avoidance rule unless the lender is taxed at a sufficient rate or the main purpose is not to obtain a tax advantage.
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