News from the field of international contracts - Double Tax Treaties
Laws on Ratification of the Double Tax Treaties between The Republic of Serbia and The Kingdom of Norway, The Republic of Serbia and The Republic of Kazakhstan
The Law on ratification of Double Tax Treaty between the Republic of Serbia and the Kingdom of Norway (hereinafter referred to as DTT) and the Law on ratification of Double Tax Treaty between the Republic of Serbia and the Republic of Kazakhstan were published on November 26th, 2015 (“Official Gazette RS-International treaties”, no. 21/2015) and came into force on December 4th, 2015.
Former Double Tax Treaty between SFRY and the Kingdom of Norway (“Official Gazette SFRY-International treaties”, no. 9/85) ceases to exist.
Scope of the DTT
The DTT between the Republic of Serbia and the Kingdom of Norway is applicable to the income tax enforced by the contracting state, while the former DTT between SFRY and the Kingdom of Norway was applicable to the income tax and tax on capital.
Novelties of the DTT between the Republic of Serbia and the Kingdom of Norway
New DTT introduced some novelties in comparison to the former DTT, from which few of them are listed below:
1. Permanent establishment
DTT introduced novelties with regard to what is deemed as a permanent establishment and determines conditions which allow that the services performed through an individual be deemed as activities performed through a permanent establishment.
DTT shortened the minimum period of time necessary to elapse for a building site, construction or an installation project to be considered as permanent establishment from 12 to 9 months.
2. Taxation of business profit
- New DTT deleted the paragraph regulating taxation of business profit that the resident of Norway derives from his participation in joint business operations with a Yugoslav enterprise, may be taxed in Yugoslavia.
- When taxing the business profit of associated enterprises, if a Contracting State includes in the profit of an enterprise of that State - and taxes accordingly - profit on which an enterprise of the other Contracting State has been taxed in that other State, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on that profit.
- Under certain conditions, business profit of the Contracting State enterprise from the use, maintenance or rental of containers used for transportation of the goods in the international traffic shall be taxable only in the Contracting State of which the enterprise is a resident.
3. International traffic
The DTT now deems road traffic as part of international traffic.
DTT adds one more meaning to the term “dividends”. Dividends are also “income from arrangements carrying the right to participate in profits to the extent so characterized under the laws of the Contracting State in which the income arises”.
Possibility to tax dividends has been given to the Contracting State of which the company paying the dividends is a resident. When the beneficial owner of the dividends is a resident of the other Contracting State the tax so charged shall not exceed either 5% or 10% gross amount of dividends under certain conditions (Article 10 paragraph 2).
Where dividends are derived and beneficially owned by the Government of a Contracting State, such dividends shall be taxable only in that State.
Interest is no longer taxable only in the State of which the beneficial owner of the interest is a resident, but this is only a possibility. When taxed in the Contracting State where arises, if the beneficial owner of the interest is the resident of the other Contracting State, the tax so charged shall not exceed 10% of the gross amount of the interest.
The tax charged on royalties, when taxed by the Contracting State in which they arise, and the beneficial owner is the resident of the other Contracting State, shall not exceed 5% respectively 10% of the gross amount. Previous DTT had the limit of 10% gross amount of the royalty.
7. Capital gains
DTT provides a possibility for a Contracting State to tax capital gains from the alienation of shares or comparable interests of any kind, which the resident of the other Contracting State derives in the territory of the first mentioned State under certain conditions.
8. Independent personal services
One of the novelties is the reduction of the period during which a resident of one Contracting State is present in the other Contracting State in which he performs independent personal services and accordingly is taxed or exempt from tax in the other Contracting State. The period of 183 days or more in 2 consecutive years has been altered to 183 or more days in 12 months commencing or ending in the fiscal year concerned.
9. Income from employment
The period of stay for the resident of Contracting State in the territory of the other State as the condition for taxation of income from employment only in the State of Residency, has been reduced from up to 183 days in 2 consecutive years to 183 days in 12 months period commencing or ending in the fiscal year concerned.
DTT introduces annuities and other similar payments, including payments under a social security system and alimony within this article. This type of income may be taxed in the State in which they arise, but the tax so charged shall not exceed 15% of the gross amount of the payments.
11. Off shore activities
New DTT, under the Article 21 introduces and regulates off shore activities.
12. Elimination of double taxation
In case of both Contracting States, if the resident of one of the Contracting State, derives income which, in accordance with the DTT provisions, may be taxed in the other Contracting State, State of Residency shall, as the deduction of the income tax of its resident, apply the amount equal to the tax paid in the other Contractual State (credit method) which shall not exceed that part of the income tax calculated in accordance with the applicable legislation of the State of Residency.