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Philippines-United Arab Emirates

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Treaty between Philippines and United Arab Emirates – details

Details of the first-time income tax treaty and protocol between the Philippines and the United Arab Emirates, signed on 21 September 2003, have become available. The treaty was concluded in the English and Arabic languages, each text having equal authenticity. In the case of divergence, however, the English text prevails. The treaty generally follows the UN Model Convention.

The maximum rates of withholding tax are:

-   15% on dividends in general and 10% if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends;
-   10% on interest; and
-   10% on royalties. The definition of royalties includes payments for the use of, or the right to use, films or tapes for radio or television broadcasting, or industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

The treaty permits the states to levy a branch profits tax of up to 10%. However, no branch remittance tax is imposed on enterprises registered with the Philippine Economic Zone Authority (PEZA) in respect of its activities registered with the PEZA.

Main deviations from the UN Model Convention include:

-   Art. 5 (Permanent establishment) states that a permanent establishment includes a farm or plantation;
-   Art. 8 (Shipping and air transport) provides that whilst the profits of an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the residence state, they may also be taxable in the source state at the lower of (i) 1.5% of the gross revenues derived in the source state, and (ii) the lowest rate that may be imposed on profits of the same kind derived under similar circumstances by a resident of a third state.
-   Art. 14 (Independent personal services) states that services rendered by a resident of a contracting state can be taxed in the source state when his stay in the source state is more than 120 days in a 12-month period.
-   Art. 17 (Artistes and athletes) provides that income of artistes and athletes in respect of activities that are part of a cultural or sports exchange programme substantially supported by public funds and/or officially approved by the contracting state is exempt from tax in the source state.
-   Art. 20 (Professors and teachers) provides that the remuneration of professors and teachers is taxable only in the state of residence provided that their visit to the source state for the purpose of teaching or carrying out advanced study or research (excluding research undertaken primarily for the private benefit of specific person(s)) at an educational institution does not exceed 3 years. Remuneration includes remittances from outside the source state which enable the professor or teacher to carry out the abovementioned duties.
-   Art. 21 (Students and trainees) includes an exemption from tax in the source state on any remuneration received for a period of 2 years from the date of first arrival, for services that are in connection or incidental to the individual's training.

The Philippines provides for the credit method to avoid double taxation whereas the United Arab Emirates provides for the exemption method. The treaty applies for a minimum period of 5 years.

Treaty between Philippines and United Arab Emirates signed and enters into force

The income and capital tax treaty and protocol between the Philippines and United Arab Emirates, signed on 21 September 2003, entered into force on 2 October 2008. The treaty generally applies from 1 January 2009.

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