FOCUS ON THE DOUBLE TAX TREATY (“DTT”) BETWEEN LUXEMBOURG AND QATAR
June 2010
The conditions required for the coming into force of the Double tax treaty between the Grand Duchy of Luxembourg and Qatar (the “DTT”), its Protocol and the exchange of letters signed in Luxembourg on 3 June 2009 having been fulfilled, on the DTT came into force on 9 April 2010.The DTT is generally based on the OECD model tax convention. The main features of the DTT are discussed below.
1) Permanent Establishment
The DTT diverges from the OECD model thus:
A building site or construction or installation project constitutes a PE only if it lasts for more than six months Twelve months is the norm in the OECD model.
An insurance company resident in a contracting state constitutes a PE in the other contracting state if it levies premiums or covers risks on the territory of the other contracting state through a person, other than an independent agent, as a broker or general commission agent.
2) Dividends
The rate of withholding tax on dividends, if any, paid by a company which is a resident of a contracting state to a resident of the other contracting state may not exceed:
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0% of the gross amount of the dividend if the beneficial owner is a company which holds directly at least 10% of the company paying the dividends;
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5% of the gross amount of the dividend if the beneficial owner is an individual who holds at least 10% of the company paying the dividends and was a resident of the other contracting state for the 48-month period immediately preceding the year the dividends are paid; and
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10% of the gross amount of the dividends in other situations.
Exemption from Luxembourg withholding tax on dividends paid to treaty country “corporate shareholders” may however apply based on domestic law.
3) Interest
Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
Luxembourg does lot levy withholding tax on interest save in very particular cases.
4) Royalties
Royalties are taxable at source at a rate not exceeding 5%.
Luxembourg does not levy withholding tax on royalties.
5) Enforcement
The general rule is that capital gains are subject to tax in the state of residence of the seller. However the DTT provides the following:
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Gains derived by a resident of a contracting state from the alienation of immovable property located in the other contracting state may be taxed in that other state;
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Gains from the alienation of movable property allocated to a permanent establishment which an enterprise of a contracting state has in the other contracting state may be taxed in that other state;
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Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to the operation of such ships or aircraft, may be taxed in the jurisdiction in which the place of effective management of the enterprise is located.
6) Double Taxation
Qatar provides for the credit method with respect to any kind of income, whileLuxembourg provides for:
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the exemption-with-progression method to avoid double taxation for most type of income, and
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the credit method with respect to dividends, royalties and income earned by artists and sportsmen.
7) Exchange of Information
The DTT has a clause dealing with the exchange of information similar to the one provided for in the OECD Model Convention.
A contracting state cannot refuse a request for information solely because it has no domestic tax interest in the information or solely because it is held by a bank or other financial institution.
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