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Luxembourg; Barbados

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Treaty between Luxembourg and Barbados – details

Details of the income and capital tax treaty between Luxembourg and Barbados, signed on 1 December 2009, have become available. The treaty was concluded in the French and English languages, each text having equal authenticity. The treaty generally follows the OECD Model Convention.

The maximum rates of withholding tax are:

-   15% on dividends, but 0% if the company receiving the dividends owns directly at least 10% of the capital of the company paying the dividends for an uninterrupted period of at least 12 months prior to the decision to distribute the dividends (Art. 10(2));
-   0% on interest (Art. 11(1)); and
-   0% on royalties (Art. 12(1)).

Deviations from the OECD Model include that:

-   a building site or an installation or drilling rig or a ship used for the exploration or exploitation of natural resources, constitutes a permanent establishment only if it lasts for more than six months (Art. 5(3));
-   where an enterprise of a Contracting State which has a PE in the other Contracting State carries on in the other Contracting State business activities of the same or similar kind as those effected through that PE, the profits of such activities may be attributable to the PE to prevent abuse unless the enterprise shows that such activities could not have been reasonably been undertaken by the PE (Art. 7(2));
-   the term dividends in the case of Luxembourg also includes the investor's share of the profit in a commercial, industrial, mining or craft undertaking, paid proportionally to the profits and by virtue of his capital outlay, as well as interest and payments on bonds, where, over and above the fixed rate of interests, a right of assignment is granted for supplementary interest varying according to the unretained earnings (Art. 10(3));
-   if a company which is a resident of a Contracting State has a PE, the other Contracting State may not impose tax on any remittances or deemed remittances of such profits or income by the PE to the company which is a resident of the first-mentioned Contracting State (Art. 10(6));
-   the term "royalties" includes payments for the use or right to use discs or tapes for radio or television broadcasting and the use of, or the right to use, industrial, commercial or scientific equipment (Art. 12(2));
-   the treaty contains a provision on independent services based on Art. 14 of the UN Model (Art. 14));
-   payments made under the social security legislation of a Contracting State are only taxable in the source state (Art. 18(2));
-   pensions and other similar remunerations (including lump-sum payments), arising in a Contracting State and paid to a resident of the other Contracting State, will be taxable only in the Source State if the following conditions are met: (i) the payments derive from contributions, provisions or insurance premiums paid to a supplementary pension scheme by the recipient or on his behalf, or contributions by the employer to a business pension scheme; and (ii) the contributions, allowances, insurance premiums or endowments have been subject to tax in the Source State under its normal tax rules (Art. 18(3));
-   provision on professors and teachers providing for an exemption of remunerations received from abroad for a period of maximum 2 years (Art. 21);
-   the treaty does not contain an arbitration clause; and
-   the treaty does not contain a provision on assistance in the collection of taxes.

Barbados applies the credit method for the avoidance of double taxation (Art. 24(1)(a) and (b)). Luxembourg applies the exemption-with-progression method for the avoidance of double taxation (Art. 24(2)(a)). Luxembourg applies the credit method for the avoidance of double taxation with respect to dividends and income from artists and sportspersons (Art. 24(2)(b)). Luxembourg will not apply the exemption-with-progression method to income derived or capital owned by a resident of Luxembourg, or if Barbados applies the provisions of the treaty to exempt such income or capital from tax or applies the dividend withholding tax (Art. 24(2)(c)).

Neither Contracting State can terminate the treaty during a period of 5 years starting from the date of its entry into force (Art. 30(1)).

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