Azerbaijan, Netherlands DTA Enters Into Force

by Ulrika Lomas, Tax-News.com, Brussels

08 January 2010

The Azerbaijan Minister of Taxes has announced the entry into force of a convention on the avoidance of double taxation, and on the prevention of fiscal evasion, which was signed on September 2008 with the Netherlands.

The agreement signed in Baku, Azerbaijan, by the Netherlands’ State Secretary for Finance of the Netherlands, Jan Kees de Jager and the Minister of Taxes of Azerbaijan, Fazil Mammadov, brings Azerbaijan's total number of agreements for the avoidance of double taxation to 39.

The convention, which entered into force last month, concerns taxes on income and on capital gains. In addition, the convention is intended to prevent fiscal evasion and to provide for the exchange of information.

Commercial ties between Azerbaijan and the Netherlands continue to increase at a rapid pace; imports from Azerbaijan have increased from a mere EUR3.5m in 2004 to EUR224m in 2007.

The convention aims to contribute to the further development of economic relations between the Netherlands and Azerbaijan and to promote investment between both countries, and will reduce the taxpayers' administrative burden because it is no longer necessary to report items of income in both countries.

The rights of governments to levy taxes on income of both individuals and businesses are also determined in the agreement.

For dividends, a withholding tax of 5% is applicable if the percentage of a stake in a company is at least 25% (without the treaty it would be 10%). In other cases, a withholding tax of 10% is applicable on dividends, and for interest, a withholding tax of 10% is applicable.

Various categories of interest are exempted from withholding tax, for example, interest on loans granted by or guaranteed by the government and interest relating to sales on credit.

For royalties, a withholding tax of 5% applies if the intellectual property is older than three years. In other cases, the withholding tax on royalties is 10%. Without the treaty it would be 14%, if royalties were paid from Azerbaijan.

Additionally, the payment of remuneration for technical or managerial services paid to a resident of the Netherlands by an Azerbaijani-resident will be exempt from withholding tax.

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