After the Netherlands and the UAE signed a treaty for the Avoidance of double Taxation in May of 2007 it finally has entered into force on the 2nd of June 2010.

There are hardly any taxes in the UAE. There is no VAT or income tax and corporation tax is reserved for oil-producing companies and branches of foreign banks. The Netherlands have some of the highest taxes in the world. The treaty therefore is especially good news for residents of the Netherlands investing in the UAE, investors in the Netherlands living in the UAE, and even for residents of the Netherlands working temporarily in the UAE.

Dutch expats living in the Emirates owning a 5% or higher participation in a Dutch company can benefit from the treaty. The Emirates do not levy any withholding tax on dividends, but the Netherlands does so normally at a rate of 15%. The treaty reduces the maximum allowed withholding tax to 5% if paid to a UAE corporation.  Dutch expats in the Emirates should consider transferring their shares in a Dutch company to a local UAE company.
Transferring any shares held in a Dutch holding will trigger Dutch capital gains taxes at a rate of 25% based on the value of the shares at the time of leaving the Netherlands. However after the shares have been transferred to a UAE company it can receive dividends from the subsidiary companies in the Netherlands subject to only 5% dividend tax. The dividend can then be withdrawn from the UAE company without paying  any dividend tax.

Not acting and thus keeping your shares privately means the default withholding Dutch withholding tax rate of 15% continues to apply. In case there were any unrealised capital gains upon leaving the Netherlands the rate will be initially 25% until this tax on the deemed disposal of the shares upon emigration is paid.

If you are in the lucky position that you have lived outside the Netherlands for ten years or longer you can transfer the shares of your Dutch holding to a UAE company without paying capital gains tax. A further benefit of the treaty is that residents of the Netherlands who temporarily work in the UAE can do so tax free by ensuring they are employed by a UAE employer. Salaries received will be exempt in the Netherlands and not be taxed the UAE of course. The advantages that already existed for Dutch investors in the Emirates will remain the same: e.g. when a Dutch company sets up a UAE subsidiary the participation exemption will apply: any dividends the untaxed UAE company pays up will not be taxed. The same applies to activities carried out by a Dutch BV through a permanent establishment in the UAE.

Freemont Group can support you with the incorporation of a UAE companies and tax compliant structuring. We invite you to make an appointment with one of our advisers.