New international treaties to alter withholding tax amounts

Two new double-taxation treaties with Iran and Chile entered into force in 2016. The treaties have been in effect from 1 January 2017. Both of them regulate the amount of withholding tax that can be imposed by the source country on income from dividends, interest and royalties. Under both treaties, a 5% withholding tax applies to the gross income from dividends and interest, while an 8% withholding tax pertains to the gross income from royalties. A double-taxation treaty with Turkmenistan is expected to enter into force, with an effective date of 1 January 2018.

In addition, the Czech Republic entered into three tax information exchange agreements (TIEAs) with Monaco, the Cook Islands and Aruba. Based on these agreements, the tax authority may ask the contracting state’s tax authority for all information necessary to determine, collect and recover taxes. The conclusion of these agreements also led to a decrease in withholding tax on the payment of income from the Czech Republic from currently 35% to standard rate of 15%.

It is also possible to apply a 15% instead of a 35% withholding tax in respect of countries that have not concluded either a double-taxation treaty or a tax information exchange agreement with the Czech Republic but have signed the Convention on Mutual Administrative Assistance in Tax Matters. The convention represents a comprehensive multilateral instrument developed by the Council of Europe in cooperation with the OECD, facilitating various forms of international administrative assistance in tax matters. In 2016, the following states signed the convention: the Marshall Islands, Nauru, Niue, Saint Christopher and Nevis, Saint Vincent and the Grenadines, Senegal, Samoa, Uganda and Uruguay. A 15% instead of a 35% withholding tax thus applies in respect of these states.