Kuwait and the UAE signed a double taxation agreement with respect to taxes on income and capital in Dubai on 11 February 2024, adopted by Kuwaiti Decree-Law No. 7 of 2024, and unlike the common treaty model that leaves the source state a limited taxing right, this agreement provides that dividends and interest are taxable only in the beneficiary's state of residence, while retaining the source state's right to tax royalties and technical service fees, capped at 10%.

Dividends: Taxable Only in the State of Residence

Article 10 of the Agreement provides that dividends paid by a company resident in a contracting state to a resident of the other contracting state are taxable only in that other state, provided that resident is the beneficial owner of the dividends. This means no withholding tax is imposed in the dividend's source state on a beneficiary resident in the other state, unless that beneficiary carries on business through a permanent establishment there.

Interest: Also Taxable Only in the State of Residence

Similarly, Article 11 provides that interest arising in a contracting state and paid to a resident of the other contracting state, who is the beneficial owner of that interest, is taxable only in that other contracting state. The Agreement thus gives dividends and interest the same treatment, granting full priority to the beneficiary's state of residence.

Royalties: the Source State's Right Capped at 10%

Article 12 departs from this approach for royalties, providing that royalties arising in a contracting state and paid to a resident of the other state may be taxed in the source state under its law, but the tax imposed shall not exceed 10% of the gross amount of the royalties.

Technical Services: the Same 10% Cap

A separate article (Article 12 bis) addresses income from technical services arising in a contracting state and paid to a resident of the other state, allowing it also to be taxed in the source state, provided the tax imposed does not exceed 10% of the gross amount of the income from technical services.

Why This Distinction Between Types of Income?

The Agreement clearly distinguishes between two treatments: a full exemption from source-state tax on dividends and interest (as long as the beneficiary does not carry on business through a permanent establishment in the source state), and a limited 10%-capped right retained by the source state over royalties and technical services. In practice, this means a Kuwaiti company paying dividends or interest to a shareholder or creditor resident in the UAE is not subject to Kuwaiti withholding tax on these amounts under the Agreement, unlike payments made for a royalty or a technical service.

Legal References

For questions about your specific situation, you can ask the Kuwait or UAE Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.