Russia seeks sanctions workaround through deal with UAE

Russia is actively working to circumvent international sanctions by concluding an agreement with the United Arab Emirates (UAE) on the prevention of double taxation. 

This move is aimed at protecting Russian oligarchs and companies moving capital to new offshore jurisdictions, according to Russian media reports.

The agreement, which has already been preliminarily agreed and is expected to be signed in the first half of 2025, provides for a 10% tax rate on income from dividends, interest, and royalties. Deputy Russian Finance Minister Alexei Sazanov noted that one of the main objectives of this agreement is to attract foreign investment while not reducing the national tax base.

The key provisions of the agreement include:

• A uniform 10% tax rate on passive income;
• Expansion of benefits to cover not only state-owned enterprises but also private businesses and individuals;
• Removal of the UAE from the Russian Finance Ministry's "blacklist" of offshore jurisdictions.

Following the imposition of international sanctions against Russia due to its invasion of Ukraine, Cyprus, which had previously been a popular offshore jurisdiction for Russian business, began restricting cooperation with Russian companies. Specifically, in 2023, Cyprus launched an investigation into sanctions violations, which drew the attention of the FBI, and many major Russian firms left the island state.

In response to these changes, Russia began actively relocating its business structures to the UAE. In 2022, approximately 700 Russian companies registered a second legal entity in the Emirates, a sevenfold increase compared to the previous year.

Currently, the UAE is listed on the Russian Finance Ministry's "blacklist" as an offshore jurisdiction, but the signing of the agreement will change their status. Lawyer Sergey Chelyshkov noted that this would be a significant step for Russian businesses seeking to move capital and protect their assets following the introduction of sanctions.

Previously, Russian President Vladimir Putin suspended the application of double taxation avoidance agreements with 38 countries, including Cyprus, citing "unfriendly actions" towards Russia. The agreement with the UAE will serve as a new alternative for Russian companies that have lost access to traditional European offshore jurisdictions.

The Russian government plans for the agreement to enter into force on 1 January 2026, and enterprises that have already moved their structures to the Emirates will receive favourable tax conditions, which authorities believe should stimulate the influx of new market players.