Treaty Anomalies: Corporate Restructure – South Africa / UAE Double Tax Agreement
Our client is a Mauritius headquartered telecoms business with operating subsidiaries throughout Africa. As part of a restructuring exercise, the group decided to relocate its headquarters to Dubai. The UAE has a growing DTA network and one with South Africa, a jurisdiction that is central to our client’s business. A key consideration to the proposed reorganisation was how to effect the transfer from Mauritius to Dubai. Typically, a redomiciliation or cross-border merger would be the way to go, but we were not confident that the process in either case would be straightforward. Cross-border mergers are by definition complex transactions (as are redomiciliations) and the UAE is a relatively new jurisdiction where bureaucracy can get in the way of matters that are not “plain vanilla”.
The obvious alternative would be to move central management and control of the Mauritius company to Dubai and subsequently apply for a tax residency certificate. However, the UAE although not defining tax residence in its domestic legislation, appears to use only incorporation as its test for residence and seems to go out of its way to put this into its DTAs.
For example, in the Mauritius/UAE DTA, Article 4(1)(b) defines a resident of the UAE as “…a company which is incorporated in the United Arab Emirates.”
This would appear to have been too simple, so they moved onto this wording for Article 4(1)(a)(ii) of the UAE/UK DTA “any person other than an individual that is incorporated or otherwise recognised under the laws of the United Arab Emirates or any local government or local authority thereof;”.
This has become a real mess in Article 4(1)(b)(ii) of the South Africa/UAE DTA “any company or other legal entity which is incorporated or created under the laws of the United Arab Emirates by reason of its residence, domicile, place of management or any other criterion of a similar nature.”
Apart from copying the general wording from the OECD model tax convention we are not sure why this wording was chosen unless it was to confuse people. But for whatever reason, our client will not be redomiciling to the UAE.
If you think you would be impacted by these possible changes and would like to discuss, or if you have any questions on the above, please do not hesitate to contact Andrew Parkes.