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Luxembourg's Parliament Approves Tax Agreement With Taiwan

On 9 June 2014, the Luxembourg Chamber of Deputies approved the pending income and capital tax treaty with Taiwan. The treaty was signed 19 December 2011, and is the first of its kind between the two countries.

Taxes Covered

The treaty covers Luxembourg individual income tax, corporation tax, capital tax, and communal trade tax. It covers Taiwan profit-seeking enterprise income tax, individual consolidated income tax, and  income basic tax.

Residence

If a company is a resident in both territories, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If the authorities cannot reach mutual agreement, the company will not be entitled to any relief or exemption from tax provided for in the treaty unless agreed upon by the competent authorities.

Service PE

The treaty includes provisions that a permanent establishment will be deemed constituted when an enterprise of one territory furnishes services in the other territory through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months in any 12 month period.

Withholding Tax Rates

  • Dividends - 15% if the beneficial owner is a collective investment vehicle established in the other territory and treated as a body corporate for tax purposes in that other territory, otherwise 10%
  • Interest - 15% if the beneficial owner is a collective investment vehicle established in the other territory and treated as a body corporate for tax purposes in that other territory, otherwise 10%
  • Royalties - 10%

Double Taxation Relief

Taiwan applies the credit method for the elimination of double taxations, while Luxembourg generally applies the exemption method. However, in the case of dividend, interest, royalties, income of artistes and sportspersons, and certain other income, Luxembourg applies the credit method.

Limitation on Benefits

The treaty includes a limitation on benefits provision whereby the benefits of the treaty will not apply if the main purpose or one of the main purposes of a resident's conduct of operations is to take advantage of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments have been exchanged, and will apply from 1 January of the year following its entry into force.

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