Q: Which taxes does the DTA cover?
A: The Double Taxation Agreement between Russia and the UAE covers only taxes on income, and does not encompass all taxes in general.
Specifically, the DTA applies to the following taxes:
- On the Russian Federation side — corporate income tax and personal income tax. These are the taxes most commonly arising from the payment of dividends, interest, royalties, director’s fees, and the receipt of income from Russian sources.
- On the United Arab Emirates side — Corporate Tax, as well as any other taxes on income that may be introduced in the future and are substantially similar in nature to the corporate tax.
In practice, this means that the DTA governs which state may tax a particular item of income and to what extent, but does not exempt businesses or individuals from other tax and regulatory obligations in Russia or in the UAE.
Q: Does the new DTA apply automatically if I have a business in the UAE and some of my income is connected to Russia?
A: No, the DTA does not apply automatically. To use its provisions, you must confirm your tax residency (by obtaining a tax residency certificate) and correctly classify the type of income (dividends, interest, director’s remuneration, income from services, etc.).
Without this, the tax authorities of both countries may treat you as their own tax resident and apply each country’s domestic legislation.
Q: Does the DTA provide a full exemption from taxes?
A: No. The DTA does not exempt from taxes as such, but rather allocates taxing rights between states and prevents double taxation of the same income. In most cases, tax is either paid in one country or the tax paid is credited in the other.
Q: Can one simply pay tax "where it is more beneficial"?
A: No. The DTA does not grant the freedom to choose the tax jurisdiction. The key determining factors are tax residency, the source of income, and its legal classification. Artificial redistribution of income may result in additional tax assessments and tax disputes.
Q: Does the DTA apply to individuals who are business owners?
A: Yes. The DTA applies to both legal entities and individuals, including entrepreneurs, directors, and company shareholders, provided they receive income that falls within the scope of the agreement.
Q: Is it necessary to confirm tax residency every year for the DTA to apply, or is a single certificate sufficient?
A: As a rule, confirmation of tax residency is required for each tax period in which the DTA is applied. A tax residency certificate is valid for a specific calendar year and does not automatically extend to subsequent periods. Using an “old” certificate from a prior year creates a risk that the Russian tax authorities will refuse to apply the DTA, particularly during tax audits or desk reviews.
Q: Which specific UAE tax residency certificate is recognised in Russia, and who issues it?
A: Russia recognises the official Certificate of Tax Residency issued by the UAE Federal Tax Authority (FTA). This certificate is obtained electronically through the FTA portal and must specify the relevant tax period, the taxpayer’s details, and confirmation of their tax residency in the UAE. Other documents (Emirates ID, resident visa, rental agreement, bank statements) do not replace the tax residency certificate on their own; they may only be used as additional supporting evidence.
Q: Can the DTA be applied retrospectively if tax has already been withheld in Russia?
A: In some cases — yes. If tax was withheld in Russia without applying the DTA, the taxpayer is entitled to initiate a refund or offset of the overpaid tax, provided a tax residency certificate and supporting documents are subsequently submitted. In practice, however, such procedures take considerable time and are frequently accompanied by disputes with the tax authorities, particularly where the withholding agent originally considered the application of the DTA unjustified.
Q: What should be done if a Russian withholding agent refused to apply the DTA?
A: A refusal by the withholding agent does not deprive the taxpayer of the right to apply the DTA. In such a situation, two courses of action are available: either re-approaching the withholding agent with a complete package of documents (including the residency certificate and a legal position paper), or independently applying to the Russian tax authorities for a refund of the excessively withheld tax. In practice, an agent’s refusal is often driven not by the tax authority’s position but by the company’s or bank’s own conservative internal policy.
Q: Is a director always the key criterion for determining the place of effective management?
A: No. The director is an important, but not the sole, criterion. When determining the place of effective management, tax authorities analyse a combination of factors: where strategic decisions are made, where financial control is exercised, from where bank accounts are managed, and where management and financial accounting is carried out. Even if the director is formally located in the UAE, if key decisions are in fact made from Russia, the risk of the company being recognised as a tax resident of the Russian Federation remains.
Q: Is it possible to reduce the risk of a company being recognised as a Russian tax resident when it is managed remotely?
A: It is not possible to eliminate the risk entirely, but it can be significantly reduced. This requires building genuine management from the UAE: holding meetings of governing bodies in the UAE, recording the adoption of key decisions, ensuring local control over bank accounts, financial administration, and document flow. Formal “re-drafting” of documents without actually changing the management model generally does not work.
Q: Does electronic signing of documents affect the determination of the place of management?
A: Electronic signing alone is not a decisive factor, but it may be used as additional evidence. Tax authorities assess not only the technical means of signing, but also where the company’s will was actually formed — where the decision-maker was located, where key matters were discussed and approved, and who actually controlled the process.
Q: Is it necessary to notify the Russian Federal Tax Service (FTS) of a UAE company's bank accounts if there has been no movement on them?
A: Yes. The obligation to notify the authorities of foreign accounts arises regardless of whether there has been any movement of funds. The mere fact of opening and holding an account with a foreign company controlled by a Russian tax resident is subject to notification within the deadlines established by law.
Q: How is the DTA applied if the beneficial owner is a resident of a third country?
A: In such a situation, the Russia–UAE DTA generally does not apply directly. Tax authorities will analyse who is the actual recipient of the income and may refuse to apply the DTA if the structure is used to transfer income without economic substance. Such cases require a separate analysis of the applicable agreements with the third country and the entire income ownership structure.
Q: Is it necessary to notify authorities of personal bank accounts in the UAE upon losing Russian tax residency?
A: Following the loss of Russian tax residency, the obligation to continue notifying and reporting on foreign accounts generally ceases. However, it is important to bear in mind that for the period during which the person was a Russian tax resident, all notification and reporting obligations remain in force and must be fulfilled.
Practical Situations
Situation 1: An individual is a Russian tax resident, owns a company in the UAE and receives a salary there
If an individual — who is the owner and director of the company — is a tax resident of the Russian Federation, all of their worldwide income is subject to taxation in Russia. Such income includes, in particular, the following types:
- Dividends from a company registered in the UAE are subject to taxation in the Russian Federation as the personal income of the individual.
- Director’s remuneration is typically classified as income from employment or managerial activity. If the recipient of the remuneration is a tax resident of the Russian Federation, the tax obligation arises in the Russian Federation.
In addition, a Russian tax resident who holds more than 25% of the shares (equity interests) in a UAE-registered company (and subject to other conditions established by law) falls under the Controlled Foreign Company (CFC) rules. In this case, they are required to notify the Russian tax authorities of their participation in the foreign company and to pay personal income tax in Russia on the undistributed profits of such company. Such a person is also obliged to notify the Russian tax authorities and submit the relevant reports in respect of the UAE company’s bank accounts, as well as personal foreign accounts.
It should additionally be noted that if the company’s director is a tax resident of the Russian Federation, is permanently located in Russia and effectively manages the company from Russia, there is a substantial risk that the UAE-registered company will be recognised as a Russian tax resident by virtue of the place of effective management criterion. In that case, the company’s profits may be subject to corporate income tax in Russia at a rate of 25%.
When assessing the question of the place of effective management, tax authorities typically analyse the following combination of circumstances:
- where the director and key management personnel are permanently located;
- where strategic decisions are made (regarding budgeting, investments, profit distribution);
- from where control over bank accounts is exercised;
- where financial and management administration is carried out;
- who actually controls the company’s assets and from where.
Situation 2: An individual is a UAE tax resident and owns (or manages) a company in Russia
If an individual is a tax resident of the United Arab Emirates and is also a shareholder and/or director of a Russian company, the taxation of their income depends on the type of income, the place where the activity is carried out, and the application of the provisions of the Russia–UAE Double Taxation Agreement.
Key types of income include the following:
- Dividends from a Russian company.
Dividends paid by a Russian company are considered income from sources in the Russian Federation. Russia retains the right to tax such income as the source state. The application of the Russia–UAE DTA allows the tax rate to be limited to 10%, but does not exempt dividends from personal income tax in Russia entirely. Tax is withheld at source in Russia. In the UAE, such dividends are generally not subject to income tax; however, to apply the reduced rate in Russia, confirmation of UAE tax residency is required.
- Director’s (management) remuneration.
Remuneration received for performing the functions of a director or other governing body of a Russian company is generally classified in Russia as income from employment or managerial activity and is treated as income from sources in the Russian Federation. In such cases, the Russian company assumes the obligations of a withholding agent for personal income tax.
In practice, the Russian tax authorities generally proceed on the basis that the managerial activity of a director of a Russian company is inextricably linked to the territory of Russia, regardless of the director’s formal place of location. This is particularly so where the activity is carried out in the interests of the Russian company, where managerial decisions relate to the Russian business, where documents are signed in Russia, or where the director is regularly present on Russian territory. In such cases, the income is classified as income received from sources in Russia and is subject to taxation in Russia.
The tax rate depends on the individual’s tax status and the classification of the nature of the work. If the individual is not a tax resident of the Russian Federation, an elevated personal income tax rate of 30% applies. In certain cases, however, it may be possible to apply rates equivalent to those applicable to Russian tax residents (13–22%), if it can be demonstrated that the managerial activity is of a remote nature and has no actual connection to the territory of Russia. In practice, however, this position is frequently challenged by the tax authorities and requires a thoroughly substantiated evidentiary basis.
- Sale of equity interests or shares in a Russian company.
Income from the disposal of equity interests (shares) in a Russian company is also subject to taxation in the Russian Federation as income from sources in Russia. In a number of cases, Russia retains the right to tax such income regardless of the seller’s tax residency, particularly where the interests in question are in companies whose principal value is linked to Russian assets. The application of the DTA is possible, but requires a separate analysis of the transaction structure and the nature of the assets.
- Dividends from a Russian company.
In practice, the application of the DTA to the sale of equity interests (shares) depends, in particular, on:
- whether the equity interests (shares) are “value-linked” to immovable property or other assets located in Russia;
- whether the income is classified as income from the disposal of corporate rights or as income connected with business activity in Russia;
- whether the transaction is carried out directly between individuals or through a holding structure;
- whether the buyer or another party acts as a withholding agent in Russia.
In a number of such situations, Russia retains the right to tax the income despite the seller’s tax residency in the UAE.
In certain cases, the question may arise as to whether the Russian company should be recognised as a UAE tax resident on the basis of the place of effective management criterion. Such a situation may potentially arise if key management functions in relation to the Russian company are effectively exercised outside of Russia, including from the UAE, by a director or controlling shareholder who is a UAE tax resident.
When analysing the place of effective management, a combination of factual circumstances is generally assessed, including: where the director and other key management personnel are permanently located; where strategic decisions regarding the company’s activities are made (including with respect to budgeting, investments and profit distribution); from where control over bank accounts and financial flows is exercised; where management and financial administration is carried out; and where the company’s will is in fact formed and its assets are disposed of.
It should be noted that Russian tax practice traditionally proceeds from the presumption of tax residency of Russian companies in Russia, particularly where the company is incorporated in Russia, carries on operating activities there, and has staff and assets there. Accordingly, an attempt to transfer the tax residency of a Russian company to the UAE carries a high level of dispute risk in practice and requires extremely careful structuring and documentary evidence of actual management from the UAE.
Furthermore, if under the domestic law of both countries the company may be treated as a tax resident of both Russia and the UAE simultaneously, a conflict of residencies arises. In such a situation, the special rule of the Russia–UAE DTA applies, under which the competent authorities of the contracting states seek to determine, by mutual agreement, in which state the company is considered a tax resident for the purposes of applying the Agreement. Account is taken, in particular, of the location of the head or principal office, the place of effective management, the place of incorporation or formation of the company, and other relevant factors.
The key practical risk is that, in the absence of agreement between the competent authorities, the company will not be entitled to the benefits and exemptions provided for by the DTA, unless it is separately agreed to what extent and in what manner such benefits may apply. In other words, where a residency conflict remains unresolved, the company may find itself in a situation where it is taxed under the domestic legislation of both jurisdictions without the possibility of applying the DTA mechanisms.
Thus, in a structure where the director or shareholder of a Russian company is a UAE tax resident and effectively manages the business from the Emirates, the question of the company’s own tax residency and the potential conflict of residencies becomes one of the key tax risks, requiring advance analysis and an agreed position at the stage of structuring.
Disclaimer
The information contained in this guide is for informational purposes only and does not purport to provide the reader with exhaustive legal advice. The specific circumstances of a given situation may substantially alter its legal assessment compared to the commentary provided herein.