5 August 2014
On 31 July 2014, Portugal approved for ratification the pending income tax treaty with Barbados. The treaty was signed 22 October 2010, and is the first of its kind between the two countries.
The treaty covers Portuguese personal and corporate income taxes, and local surtax on corporate income tax. It covers Barbados income tax, corporation tax, and the petroleum winning operations tax.
Both countries apply the credit method for the elimination of double taxation.
The treaty includes a limitation on benefits article which states that the benefits of the treaty will not apply for income paid if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which the income is paid to take advantage of the treaty.
In addition, a person that is entitled to income tax benefits in Contracting State under the provisions of any legislation or administrative practice that provides a substantially lower tax rate than the generally applicable tax rate will be denied certain benefits of the treaty if they do not engage in active business in that Contracting State. The benefits that will be denied include the benefits of the treaty articles on Business Profits, Shipping and Air Transport, Dividends, Interest, Royalties, and Capital Gains.
The treaty will enter into force 30 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.
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