The maximum rates of withholding tax are:
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20% on dividends in general and 5% (in the case of Luxembourg) and 10% (in the case of Turkey) on dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends; |
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| - | 15% on interest in general and 10% on interest paid on a loan with a term of more than 2 years; and | |
| - | 10% on royalties. |
The treaty permits Turkey to levy a branch profits tax of up to 10%.
Luxembourg generally provides for the exemption-with-progression method to avoid double taxation, but uses the credit method in respect of dividends, interest, royalties and the income of artistes and sportsmen. The exemption method, however, applies to dividends if the Luxembourg recipient company holds directly at least 25% of the capital of the Turkish company paying the dividends. Turkey provides for the credit and exemption-with-progression methods to avoid double taxation.
The treaty does not apply to holding companies within the meaning of certain special Luxembourg laws, which are currently the Act of 31 July 1929 and the Decree of 17 December 1938. Neither shall it apply to income derived from such companies by a resident of Turkey nor to shares or other rights in such companies owned by such a person.