Details of the first-time income and capital tax treaty and protocol between Spain and Saudi Arabia, signed on 19 June 2007, have become available. The treaty was concluded in the Spanish, Arabic and English languages, each text having equal authenticity. In case of divergence between the texts, the English text prevails. The treaty generally follows the OECD Model Convention (2005).
The maximum rates of withholding tax are:
| - | 5% on dividends in general, 0% if the beneficial owner is a company (other than a partnership) holding directly at least 25% of the capital of the company paying the dividends; | |
| - | 5% on interest, subject to exceptions for interest paid (i) by a state or by a political subdivision or a local authority, and (ii) to a state, a political subdivision or a local authority, the Central Bank or a public financial institution; and | |
| - | 8% on royalties |
Under the Protocol, the treaty permits both states to levy a branch profits tax up to a maximum of 5%.
Deviations from the OECD Model include that:
| - | a building site or construction, installation or assembly project and supervisory activities in connection therewith constitute a permanent establishment only if such building site, construction, installation or assembly project or supervisory activities last more than 6 months within a period of 12 months (Art. 5, para. 3); | |
| - | an insurance company of a state is deemed to have a PE in the other state if it collects premiums or insures risks situated therein (Art. 5 para. 6); | |
| - | where the ownership of shares or other rights directly or indirectly entitles the owner of such shares or rights to the enjoyment of immovable property, the income from the direct use, letting or use in any other form of such right to the enjoyment may be taxed in the state in which the immovable property is situated (Art. 6 para. 4); | |
| - | the definition of royalties includes payments of any kind received as a consideration for the use of, or the right to use, cinematograph films, films or tapes for radio or television broadcasting , and payments for the use of, or the right to use, industrial, commercial or scientific equipment (Art. 12 para. 3); | |
| - | capital gains derived by a resident of a state from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other state may be taxed in that other state; gains from the alienation of shares or other rights, which directly or indirectly entitle the owner of such shares or rights to the enjoyment of immovable property situated in a state, may be taxed in that state (Art. 13 para. 4); | |
| - | the treaty does not contain a provision similar to Art. 24 (Non-Discrimination). However, under the Protocol, it is foreseen to introduce such non-discrimination clause if Saudi Arabia introduces an income tax levied from nationals and residents; and | |
| - | the treaty does not contain a provision similar to Art. 27 (Assistance in the collection of taxes). |
Both states provide for the credit method to avoid double taxation. If the income derived by a resident of one state is, under the treaty, exempt from tax in that state, that state may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income (exemption with progression).