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Treaty between Turkey and Saudi Arabia – details — Orbitax Tax News & Alerts

Details of the income and capital tax treaty and protocol between Turkey and Saudi Arabia, signed on 9 November 2007, have become available. The treaty was concluded in the Arabic, Turkish and English languages, each text having equal authenticity. In the case of divergence, however, the English text prevails. The treaty generally follows the OECD Model Convention.

The maximum rates of withholding tax are:

-   10% on dividends in general and 5% if (i) the beneficial owner is a company (other than a partnership) which holds directly at least 20% of the capital of the company paying the dividends or (ii) the beneficial owner is the central bank or an entity which is wholly owned by the government;
-   10% on interest, subject to an exception for interest paid to the government, or an entity wholly owned by the government or the central bank of the other contracting state; and
-   10% on royalties.

The treaty permits both states to levy a branch profits tax up to a maximum of 5%.

Deviations from the OECD Model include that:

-   Art 4 (Resident) – legal persons, which are exempt from tax and established and maintained either (i) to provide pensions or other similar benefits to employees pursuant to a plan or (2) exclusively for a religious, charitable, educational, scientific, or other similar purpose, are considered residents of the contracting state under whose laws they are established and maintained;
-   Art 4 (Resident) – in the case of dual residency of companies the competent authorities of the contracting states shall consult by mutual agreement to determine whether the legal head office of such a person has to be considered as the actual place of effective management or not;
-   Art. 5 (Permanent establishments) – the definition of permanent establishment also includes the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within a contracting state for a period or periods aggregating more than 6 months within any 12-month period;
-   Art. 12 (Royalties) – the definition of royalties includes also payments for the use of, or the right to use, industrial, commercial, or scientific equipment;
-   Art. 13 (Capital gains) - gains from the alienation of shares that constitute a share in a company which is a resident of a contracting state, or bonds issued by a resident of a contracting state, may be taxed in that state;
-   the treaty contains Art. 14 (Independent personal services).

Both states generally provide for the credit method to avoid double taxation.