Tax treaties news

Austria

On 1 March 2017, the amending exchange of notes, which was signed on 18 June 2015, relating to Article 24 on the exchange of information of the double tax treaty of 1962 between Luxembourg and Austria, entered into force. The amended Article 24 shall apply with regard to taxable periods with retroactive effect as from 1 January 2011.

Belgium

On 29 March 2017, Luxembourg and Belgium signed an amending protocol to the Belgium-Luxembourg double tax treaty. The protocol implements the 2015 mutual agreement on frontier workers into the treaty. If a frontier worker spends less than 25 days outside the State where he usually carries out his/her work, that State will be authorised to tax the salary earned during those days. The new provision has been applicable since 1 January 2015.

Brunei

On 26 January 2017, the double tax treaty on income and capital signed between Luxembourg and Brunei on 14 July 2015 entered into force. The treaty will apply for Luxembourg from 1 January 2018 and for Brunei from 1 January 2018 for withholding taxes and 1 January 2019 for the other taxes.

The following withholding tax rates apply under the new treaty:

• dividends: the treaty provides for a standard withholding tax rate of 10% which can be reduced to 0% if the beneficial owner is a company (other than a partnership) holding directly at least 10% of the capital of the company paying the dividends. An exemption applies to listed government bodies;
• interest: the treaty provides for a withholding tax rate of 10% which can be reduced to 0% if paid to, inter alia, financial institutions, mutual funds or for interest paid to or by government bodies;
• royalties: the treaty provides for a withholding tax rate of 10% on royalties;
• technical service fees: the treaty provides for a withholding tax rate of 10% on service fees.

Luxembourg applies the credit and exemption-with-progression methods for the avoidance of double taxation. Brunei applies the credit method for the avoidance of double taxation.

Hungary

On 23 December 2016, Luxembourg ratified the new double tax treaty on income and capital between Luxembourg and Hungary which, once in force and effective, will replace the double tax treaty.

The following withholding tax rates apply under the new treaty:

• dividends: the treaty provides for a standard withholding tax rate of 10% which can be reduced to 0% if the beneficial owner is a company (other than a partnership that is not liable to tax) holding directly at least 10% of the capital of the company paying the dividends;
• interest: 0%;
• royalties: 0%.

Both States apply the exemption and credit methods for the avoidance of double taxation.

Senegal

On 23 December 2016, Luxembourg ratified the double tax treaty on income and capital signed between Luxembourg and Senegal on 10 February 2016. As Senegal has not ratified the treaty yet, the treaty is not in force.

The following withholding tax rates will apply under the new treaty:

• dividends: the treaty provides for a standard withholding tax rate of 15% which can be reduced to 5% if the beneficial owner is a company (other than a partnership) owning directly at least 20% of the capital of the company paying the dividends;
• interest: the treaty provides for a withholding tax rate of 10%, except for interest paid to the other State, one of its local bodies or the central banks;
• royalties: the treaty provides for a withholding tax rate of 10% which can be reduced to 6% for the use of, or the right to use, industrial, commercial or scientific equipment.

Both States apply the exemption and credit methods for the avoidance of double taxation.

Serbia

On 27 December 2016, the double tax treaty on income and capital signed between Luxembourg and Serbia on 15 December 2015 entered into force. The treaty has been applicable since 1 January 2017.

The following withholding tax rates apply under the new treaty:

• dividends: the treaty provides for a standard withholding tax rate of 10% which can be reduced to 5% if the beneficial owner is a company (other than a partnership) holding directly at least 25% of the capital of the company paying the dividends;
• interest: the treaty provides for a withholding tax rate of 10% which can be reduced to 0% if paid to the other contracting State, to a political subdivision, a local authority or to the central or national bank,
• royalties: the treaty provides, depending on the IP right in question, for a withholding tax rate of 5% or 10% on royalties paid.

Both States apply the exemption and credit methods for the avoidance of double taxation.

Tunisia

On 30 November 2016, the amending protocol, signed on 5 September 2014, to the double tax treaty on income and capital signed between Luxembourg and Tunisia of 1996, entered into force. The protocol has been applicable since 1 January 2017 and contains a new Article 26 on the exchange of information in line with Article 26 of the OECD model convention.

Ukraine

On 18 April 2017, the double tax treaty on income and capital between Luxembourg and Ukraine signed on 6 September 1997 finally entered into force, simultaneously with its amending protocol. The treaty and its protocol will apply for both States from 1 January 2018.

The following withholding tax rates will apply under the protocol:

• Dividends: the treaty provides for a standard withholding tax rate of 15% which can be reduced to 5% if the receiving company owns directly at least 20% of the capital of the company paying the dividends.
• Interest: the treaty provides for a withholding tax rate of 10% which can be reduced to 5% for interest paid under loans granted by banks or any other financial institutions including investment and savings banks.
• Royalties: the treaty provides for a withholding tax rate of 10% which can be reduced to 5% regarding copyright on scientific work, patent, trademark, secret formula or process information concerning industrial, commercial or scientific equipment.

Luxembourg applies the credit and exemption methods for the avoidance of double taxation.

Uruguay

On 11 January 2017, the double tax treaty on income and capital between Luxembourg and Uruguay signed on 10 March 2015 entered into force. The treaty will apply as of 1 January 2018.

The following withholding tax rates will apply under the new treaty:

• Dividends: the treaty provides for a standard withholding tax rate of 15% which can be reduced to 5% if the beneficial owner is a company (other than a partnership) owning directly at least 10% of the capital of the company paying the dividends.
• Interest: the treaty provides for a withholding tax rate of 10% which can be reduced to 0% in certain situations (e.g. bank loans with a term of at least 3 years financing investment projects, interest paid to the government, local authority or the central bank, etc.).
• Royalties: the treaty provides for a withholding tax rate of 10% which can be reduced to 5% for the use of, or the right to use, industrial, commercial or scientific equipment.

Both States apply the exemption and credit methods for the avoidance of double taxation.