UAE and Israel sign tax treaty to boost economic cooperation

Israel and the United Arab Emirates signed a tax treaty on Monday, Israel’s Finance Ministry said, describing the move as a spur to business development between the countries after they normalised relations last year.

The UAE finance ministry said in October that it had reached a preliminary agreement with Israel on avoiding double taxation.

The tax convention, once ratified by ministers and parliament this year, will be Israel’s 59th and go into effect on Jan.1, 2022. It is the first tax treaty reached in the wake of Israel’s normalising relations with the UAE and Bahrain last year. In parallel, Israel has moved to improve ties with Morocco and Sudan.

The treaty is based primarily on the OECD model, Israeli Finance Minister Israel Katz said in a statement, adding that it “provides certainty and favourable conditions for business activity and will strengthen economic ties” with the UAE.

Under the agreement, tax deductions, dividends and royalties are capped.

Israeli Foreign Minister Gabi Ashkenazi said the treaty will enable significant promotion of investment and trade that will help both countries’ economies.

Since a normalisation deal was signed last September, Israeli and Emirati banks and other companies have signed cooperation deals, while also establishing direct flights.

The Bank of Israel is expected to leave short-term interest rates unchanged this week for its ninth straight policy meeting, amid higher inflation and a view that a rapid COVID-19 vaccination roll-out will revive economic growth.

All 17 economists polled by Reuters believe the monetary policy committee (MPC) will keep the benchmark rate at an all-time low of 0.1 per cent when the decision is announced on Monday.

The next policy move is widely expected to be a rate increase but not until at least 2022, with some projecting 2023. “No change in monetary policy is expected, but a very optimistic tone is certainly expected by the Bank of Israel, given the sharp decline in morbidity and the full opening of the economy,” said Leader Capital Markets chief economist Jonathan Katz.

With 55 per cent of adults fully vaccinated, the number of active COVID cases has dropped to below 400 in Israel, prompting a near fully opening of the economy and the jobless rate has fallen to 7.9 per cent.