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The Netherlands Ratifies Tax Treaty with Ethiopia

On 14 June 2014, the Netherlands ratified the pending income tax treaty with Ethiopia. The treaty, signed 10 August 2012, is the first of its kind between the two countries.

Taxes Covered

The treaty covers the Netherlands income tax, wage tax, company tax and dividend tax. It covers Ethiopian tax on income and profits, and the tax on income from mining, petroleum and agricultural activities.

Offshore PE

The treaty includes the provision that a permanent establishment (PE) will be deemed constituted when an enterprise of one Contracting State carries on activities for a period or periods aggregating more than 30 days in any 12 month period in the territorial sea, and any area beyond the territorial sea within which the other State exercises jurisdiction or sovereign rights.

In the event an enterprise from one Contracting State performs such activities in the other State, and those activities are continued by an associated enterprise for the same project, a PE will be deemed constituted for both enterprises if the combined period of activity exceeds 30 days in any 12 month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital or is a pension fund, otherwise 10% if paid by a resident of Ethiopia and 15% if paid by a resident of the Netherlands
  • Interest - 5%
  • Royalties - 5%

Double Taxation Relief  

Ethiopia applies the credit method for the elimination of double taxation, while the Netherlands applies both the credit and exemption methods depending on the type of income.

Entry into Force and Effect

The treaty will enter into force on the first day of the second month following the exchange of the ratification instruments. It will apply for the Netherlands from 1 January of the year following its entry into force, and for Ethiopia from 8 July following its entry into force.

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