The main elements of this agreement are described below:
The agreement contains a specific clause for income received by persons who are wholly or partly transparent for tax purposes.
A permanent establishment encompasses a building site, or construction, assembly or installation project that lasts more than twelve months. Whereas services provided through employees or other personnel sent by a company from a contracting state to work for more than 183 days in any twelve-month period also determine the existence of a permanent establishment.
Dividends may be taxed, in general, at a rate not exceeding 10%. The rate is lowered to 5% if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment of the dividend. There are also exemptions for dividends paid to beneficial owners which are public or government-owned entities.
Interest may be taxed at a rate not exceeding 10% if the beneficial owner of the interest is a resident of the other state. There are exemptions however for interest paid to beneficial owners which are public entities or government-owned entities or for the sale on credit of commercial or scientific equipment.
Royalties may be taxed at a rate not exceeding 10% if the beneficial owner is a resident of the other state (the reduction to tax on 60% of the gross amount of royalties paid for the use or right to use industrial, commercial or scientific equipment has been deleted).
In relation to capital gains, the treaty contains a clause on real estate companies, meaning companies deriving more than 50% of their value directly or indirectly from real estate assets situated in the other state, not including any real estate assets that are used for conducting the company’s business.
There is also a clause on the taxation of gains obtained by holders of a significant interest (holding directly or indirectly at least 25% of the capital of a company) with a few exceptions for shares transferred on stock exchanges. Therefore, in all other cases, the gains do not have to be taxed in the state of source, if those requirements are fulfilled.
Double taxation tax credits: both states allow the tax credit method of eliminating double taxation.
It is specified in the Protocol that the limit on the tax rates for dividends, interest and royalties must be directly applied rather than through a levy-then-refund procedure, where the rates are lower than those stipulated in the domestic law of the state in which the income arises.
A clarifying provision has been included to specify that nothing in the agreement may prejudice the right of each state to apply its domestic laws and measures concerning the prevention of tax avoidance, whether or not described as such, insofar as they do not give rise to taxation contrary to the agreement.
The date given for its entry into force is May 2, 2021 and it will have effect, for taxes not withheld at source, in the years beginning on or after that date.
The previous 1990 treaty will largely cease to have effect from the date the provisions of the new agreement become applicable. However, the provisions of article 23 (“Capital”) of the 1990 agreement will cease to have effect from December 31, 2021.