After years of negotiations, Russia and the UAE have finally signed a comprehensive agreement to avoid double taxation. The document, which will come into force on 1 January 2026, will fundamentally change tax relations between the countries and open up new opportunities for business.

Why the previous agreement of 2011 did not work

The current tax convention between Russia and the UAE, signed in 2011, operated very limitedly. Essentially, the benefits applied only to governmental institutions, state-owned enterprises, and sovereign funds. For private companies and individuals, the agreement was virtually non-existent.

This created serious problems for business. Standard Russian withholding tax rates were applied to payments from Russia to the UAE: 15% on dividends and up to 20-25% on interest and royalties. Meanwhile, the UAE traditionally does not impose withholding tax (0%), which resulted in a one-sided tax burden.

Moreover, due to the lack of a comprehensive agreement, Russia placed the UAE on its "blacklist" of offshore zones. This led to strict fiscal measures: enhanced control of transactions with UAE residents, restrictions on participation benefits, and increased tax rates.

For example, starting from 2024, when a Russian company pays remuneration for services to a related party — a UAE resident, a tax of 15% will be withheld. Under normal circumstances, such a tax is not required.

How the negotiations for the new agreement took place

After 2020, Russia embarked on a review of tax agreements. Initially, this concerned jurisdictions through which Russian companies were repatriating profits—rates under agreements with Cyprus, Luxembourg, and Malta were raised to 15%.

Simultaneously, the Russian Ministry of Finance began updating agreements with "friendly" countries to stimulate investments. In November 2022, Deputy Finance Minister Alexey Sazanov announced the preparation of a list of friendly jurisdictions, including the UAE, for the review of tax agreements.

Negotiations started in 2022 and were not easy. The main sticking point was the withholding tax rates. According to media reports, in the summer of 2023, the parties agreed on 15% on dividends and 10% on interest, but could not agree on royalties: Russia wanted to keep 20%, while the UAE insisted on a zero rate.

Ultimately, a compromise was reached: all types of passive income would be subject to a unified rate of 10%. This "10-10-10" format began to be applied in many new agreements of the Russian Federation after 2020.

Main provisions of the new agreement

On 17 February 2025, a new agreement to avoid double taxation between the Russian Federation and the UAE was signed in Abu Dhabi. The text was approved by the Russian government on 14 February (the order was signed by Prime Minister M. Mishustin).

Taxation of passive income

A key innovation is the preferential withholding tax rates of 10% on dividends, interest, and royalties. An important condition is that the recipient must be the actual (beneficial) owner of the income, not a nominal intermediary.

Royalties in the agreement are defined broadly—payments for intellectual property, as well as payments for the rental of industrial equipment, are included. This means that rental fees for equipment between countries also fall under the preferential 10% rate.

Taxation by sectors and types of income

Real estate: income from rentals and sales is taxed in the country where the property is located. Shares in companies whose assets consist of more than 50% real estate are treated as real estate.

International transport: profit from maritime and air transport is taxed only in the country of residence of the carrier.

Business profits: taxed in the country of activity through a permanent establishment. The appearance of a permanent establishment for services occurs if they are provided for more than 6 months within a 12-month period.

Oil and gas: income from hydrocarbon activities may be taxed according to the national rules of the country where such activities are conducted.

Features for individuals

The agreement eliminates dual residency through standard criteria (permanent home, centre of vital interests). An interesting addition in the protocol: remote work is considered as activity in the state of residence of the employer.

Administrative simplifications

To confirm residency, a tax residency certificate without apostille or legalization is sufficient. This will significantly simplify the process of obtaining benefits for UAE residents.

An important point: the agreement applies to all UAE residents, even if they do not pay tax in the UAE. This means that companies from free zones with zero tax can benefit alongside others.

What will change from 2026

After ratification and the entry into force of the agreement, the tax regime between Russia and the UAE will significantly change.

Reduction of withholding tax rates

From 2026, when paying income from Russia to the UAE, withholding tax rates will be reduced:

• Dividends: from 15% to 10%

• Interest: from ~20% to 10%

• Royalties: from ~20% to 10%

This will increase the net income of investors and reduce the tax burden on business groups in both jurisdictions.

Cancellation of special Russian taxes

After the agreement comes into force, Russia will not be able to impose withholding tax on payments currently subject to anti-offshore measures. For example, the 15% tax on payments for services to related parties in the UAE, introduced in 2024, will cease to be applicable.

Companies will be able to freely engage services, consulting, and IT services from the UAE without additional taxes.

Exclusion of the UAE from the "black list"

According to the Russian Ministry of Finance, the emergence of a bilateral agreement will pave the way for the exclusion of the UAE from the list of offshore jurisdictions. This will provide several concessions:

Participation exemption: Russian companies will be able to apply exemption from tax on profits with dividends from subsidiaries in the UAE with more than 50% ownership for more than 365 days.

Relaxation of transfer pricing control: transactions with UAE residents will only be controlled in case of relatedness or trading of exchange goods. Ordinary transactions under 60 million rubles will be exempt from automatic control.

Simplification of intra-group transfers: transfer of property from an Emirati "subsidiary" to a Russian "parent" company (with more than 50% ownership) will not be subject to profit tax.

Exemptions for CFCs: there will be an opportunity to exempt profits of controlled companies in the UAE, which are banks or insurance organizations, from taxation in Russia.

New opportunities for tax planning

With the introduction of the agreement, the UAE will become a much more attractive jurisdiction for Russian business. Russian groups will be able to use Emirati companies as holding, trading, and financial centers.

International holding structures

The UAE has an extensive network of tax agreements with low domestic taxes (0% in free zones, 9% on the mainland). The addition of the Russian agreement means that capital can flow through the UAE with minimal taxation.

For example, a Russian group can establish a holding company in Dubai to own operational "subsidiaries" in Asia, Africa, and Europe. Dividends will arrive in the UAE tax-free and then be paid to Russia at preferential rates.

Direct operations with the UAE

An IT startup from Russia that moved to Dubai will be able to provide services to clients in Russia without the "penalty" tax of 15%. Russian investors in Emirati funds will be able to withdraw capital with gains, avoiding double taxation.

Important restrictions

The benefits of the agreement are only available with good faith usage. Tax authorities will check whether companies are artificially created to obtain benefits.

The requirement for beneficial ownership of income prevents abuse. Companies must have a real business purpose and economic presence in the UAE. Nominal structures without offices and personnel may not receive benefits.

Impact on individuals

Elimination of dual residency

Many Russians have partially relocated to the Emirates but maintain ties with the Russian Federation. The agreement will resolve the residency conflict through agreed principles, protecting against double taxation.

Credit for foreign tax

If a Russian citizen – tax resident of the Russian Federation receives income from the UAE on which Emirati tax has been paid, they can reduce their Russian tax by this amount. For example, when conducting business in the UAE as an individual entrepreneur, the Emirati corporate tax of 9% can be considered when calculating personal income tax in Russia.

Rules for expatriates

Employees working less than 183 days a year in another country will only pay tax in their place of residence. This will protect against double taxation of salaries during short-term assignments.

Practical recommendations

When planning to use the agreement, consider:

1. Real economic presence — companies in the UAE must have an office, personnel, and operational activity to receive benefits.

2. Compliance with the requirements of beneficial ownership — avoid nominal structures and transit schemes.

3. Preparation of documents — prepare tax residency certificates and other documentation in advance to confirm the right to benefits.

4. Planning the transition period — the agreement comes into force on 1 January 2026, use the time to adjust structures.

The new agreement creates a "favourable partnership without double taxation", which, when used wisely, will bring significant savings to Russian and Emirati businesses. The main thing is to comply with all requirements and conduct real activities, rather than create artificial schemes.