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Colombia-Portugal

26 January 2015

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Tax Treaty between Colombia and Portugal to Enter into Force

The income tax treaty between Colombia and Portugal will enter into force on 30 January 2015. The treaty, signed 30 August 2010, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Colombian income tax and its complementary taxes, and Portuguese personal and corporate income taxes, and the local surtax on corporate income.

Residence

If a company is a resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If the authorities cannot reach mutual agreement, the company will not be entitled to the benefits of the treaty.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12 month period.

Withholding Tax Rates

  • Dividends - 10% (a protocol to the treaty, signed the same date, states that when a Colombian resident company has not paid income tax on profits distributed to shareholders because of exemptions or because the profit exceeds the non taxed limit contained in Colombian tax law, the dividend distributed may be taxed in Colombia at a rate of 33%)
  • Interest - 10%
  • Royalties - 10% (includes payments for technical assistance, technical services and consulting services)
  • Capital Gains - the following gains made by a resident of one Contracting State may be taxed by the other State:
    • Gains from the alienation of immovable property situated in the other State,
    • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State,
    • Gains from the alienation of shares or a comparable interest deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, and
    • Gains derived by a resident of a Contracting State from the alienation of shares or other rights representing capital of a company resident in the other State if such resident owned 25% or more of the capital of that company at any time within the 12 month period preceding the alienation (limited to a 20% tax rate)

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

The provisions of the treaty will not apply when 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 is to take advantage of the treaty provisions. (Article 26)

MFN Clause

A protocol to the treaty, signed the same date, includes the provision that if Colombia concludes a Convention with a third State that includes provisions regarding technical assistance, technical services or consulting services that are more favorable than those provided for in Article 12 of the Colombia-Portugal treaty, then the more favorable provisions will automatically apply to the Colombia-Portugal treaty from the date of entry into force of the Convention with the third State.

Effective Date

The treaty applies from 1 January 2016.

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