The United Arab Emirates signed a tax treaty with Israel on 31 May in a follow-up move to normalising relations in 2020.
A statement by Israel's Finance Ministry said the agreement was aimed at bolstering economic ties between the two countries as they pursue normalisation by avoiding double taxation.
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.
The treaty provides certainty and favourable conditions for business activity and will strengthen economic ties."
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 UAE was only the third Arab country to normalise ties with Israel, following Egypt in 1979 and Jordan in 1994.
Bahrain, Sudan and Morocco have since followed suit.