Kenya and United Arab Emirates
According to an update from the Kenya’s National Treasury, the income tax treaty with the United Arab Emirates entered into force on 22 February 2017. The treaty, signed 21 November 2011, is the first of its kind between the two countries.
Taxes Covered
The treaty covers Kenyan income tax chargeable in accordance with the provisions of the Income Tax Act and covers UAE income tax and corporate tax.
Service PE
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel in a Contracting State if the activities continue for a period or periods aggregating more than 4 months within any 12-month period.
Income from Hydrocarbons
Article 6 (Income from Hydrocarbons) provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State.
Withholding Tax Rates
Dividends – 5%
Interest – 10%
Royalties – 10%
Capital Gains
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Gains from the alienation of immovable property situated in the other State; and
Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State
Double Taxation Relief
Both countries apply the credit method for the elimination of double taxation.
Limited Force of Attraction Provision
The final protocol to the treaty includes a limited force of attraction provision, which provides that if an enterprise of a Contracting State sells goods or merchandise of the same or similar kind as those sold by the permanent establishment, or carries out business activities of the same or similar kind as those carried out by the permanent establishment, the profits of such sales or activities may be attributed to the permanent establishment if it is demonstrated that these profits are related to the activities of the permanent establishment. An additional condition for attribution is that such sales and activities are not meant to obtain benefits under the treaty. However, this is assumed to be an error in the English version of the treaty considering that an exemption from attribution is typically provided when it can be demonstrated that such sales and activities are not meant to obtain benefits under the treaty.
Effective Date
The treaty applies from 1 January 2018.
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