Revisiting double taxation treaties with Malaysia, the UAE and Turkey.

The Ministry of Finance has started to review tax treaties on the avoidance of double taxation with friendly countries.  The agreements with Malaysia, the UAE and Turkey are currently planned to be amended in case corporate income tax is introduced in these states.

For example, the Arab Emirates has announced the establishment of a corporate income tax with a rate of 9% from 1 June 2023. The exception will be small businesses, for which the tax rate will remain zero.

The renegotiation of these agreements will increase the attractiveness of investments and improve mutually beneficial cooperation between the states by negotiating favourable tax rates. At the moment, the agreements with the countries mentioned above have a rather high tax rate.  The tax rate with Turkey is set at 10/10/10 (dividends/interest/royalty), with Malaysia the rate is 15% for dividends and interest and 10% to 15% for royalties.

A peculiarity of the agreements with these countries is that tax exemptions are provided only for governments, central banks and financial institutions under their control. It can be assumed that such exemptions will also be granted to private businesses in the future. In particular, such an easing would make the UAE an extremely attractive country for starting and doing business.

Going forward, agreements with other countries should also be reviewed. Many companies are now resorting to setting up intermediary entities in other jurisdictions to optimise tax costs. A renegotiation of the agreements would, in terms of lower tax rates, avoid such difficulties and allow direct investment.