Double Tax Agreement Between Kenya & UAE

Key Definitions

• Resident: Any person liable to tax based on domicile, residence, place of effective management, place of incorporation, or similar criteria under domestic law (excluding persons taxable only on income from sources in that State). Clear tie-breaker rules exist for dual-resident individuals and companies.
• Permanent Establishment (PE): Defines a fixed place of business. Specifically, a building/construction site or project constitutes a PE if it lasts more than 6 months. The furnishing of services (including consultancy) through employees/personnel creates a PE if activities continue for more than 4 months within any 12-month period.

Allocation of Taxing Rights on Specific Types of Income

1. Income from Immovable Property (Art. 7): Taxable in the State where the property is situated. A 50% tax reduction applies if the beneficial owner is the State itself, its local authorities, or its wholly-owned financial institutions.
2. Business Profits (Art. 8): Generally taxable only in the enterprise’s State of residence. However, if business is conducted through a PE in the other State, that State may tax the profits attributable to that PE.
3. Shipping & Air Transport (Art. 9): Profits from international traffic are taxable only in the State where the place of effective management is situated. For operations in the other State, taxable profit is capped at 5% of freight/passenger revenue from that State, with a 50% reduction of the tax charged.
4. Dividends (Art. 11):The State where the paying company is resident may tax dividends, but the rate is limited to 5% of the gross amount if the beneficial owner is a resident of the other State. If the beneficial owner is the other State’s Government, Central Bank, or agreed governmental agencies/financial institutions, the dividends are taxable only in that beneficial owner’s State.
5. Interest (Art. 12):The source State may tax interest, but the rate is limited to 10% of the gross amount if the beneficial owner is a resident of the other State .If the beneficial owner is the other State’s Government, Central Bank, or agreed governmental agencies/financial institutions, the interest is taxable only in that beneficial owner’s State.
6. Royalties (Art. 13):The source State may tax royalties, but the rate is limited to 10% of the gross amount if the beneficial owner is a resident of the other State.
7. Capital Gains (Art. 14):Gains from immovable property: Taxable where the property is situated. Gains from movable property of a PE/fixed base: Taxable where the PE/fixed base is situated .Gains from ships/aircraft in international traffic: Taxable only where the place of effective management is situated. Other gains: Taxable only in the alienator’s State of residence
8. Independent Personal Services (Art. 15): Generally taxable only in the performer’s State of residence. Taxable in the other State if a fixed base is regularly available there, or if the performer stays for >183 days in 12 months (or >122 days in each of 3 consecutive years), but only on income attributable to that fixed base/period.
9. Dependent Personal Services (Employment Income) (Art. 16): Generally taxable where employment is exercised. Exempt in the employment State if all three conditions are met: (a) presence ≤183 days in the calendar year; (b) employer is not a resident of that State; (c) salary is not borne by a PE of the employer in that State.
10. Directors’ Fees (Art. 17): Taxable in the State where the paying company is resident.
11. Artistes & Sportspersons (Art. 18): Generally taxable where activities are exercised. Special exemption for visits under cultural agreements.
12. Pensions, Annuities & Government Service (Art. 19 & 20): Government service remuneration/pensions are generally taxable only by the paying State. Other pensions/annuities are generally taxable in the source State, but social security payments are taxable only in the paying State.
13. Professors, Teachers & Researchers (Art. 21): Eligible individuals on temporary visits (≤4 years) may be exempt from tax in the host State on teaching/research remuneration, subject to conditions.
14. Students & Apprentices (Art. 22): Exempt from tax in the host State on payments from abroad for maintenance, education, or training.
15. Other Income (Art. 23): Income not dealt with elsewhere is taxable only in the recipient’s State of residence.

Special Provisions

• Elimination of Double Taxation: Achieved through allocation of taxing rights and rate limitations. Specific credit mechanisms rely on domestic laws.
• Non-Discrimination (Art. 25): Prohibits discriminatory taxation against nationals of the other State, PEs, or capital-owned enterprises.
• Mutual Agreement Procedure (MAP) (Art. 26): Provides a dispute resolution mechanism. Taxpayers can present cases to their competent authority for bilateral negotiation.
• Exchange of Information (EOI) (Art. 27): Authorities shall exchange foreseeably relevant information for implementing the agreement or domestic tax laws, with confidentiality safeguards and limitations.
• Income from Hydrocarbons (Art. 6): Critical Exception. The agreement does not affect the right of either State to apply its domestic laws to tax income/profits from hydrocarbons and associated activities within its territory.

You Can Book Consultation with me through

https://cal.com/hisibati/consulting-session

(Blog, LinkedIn, TikTok, Facebook)

 

 

 

CPA David Ndiritu Mwangi

Tax Disputes Resolution, Transfer Pricing, Tax Agent, Tax Advisory, Tax Consultant, Certified Public Accountant, Business Advisor.