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Panama; Portugal

9 January 2011

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Treaty between Panama and Portugal – details

Details of the income tax treaty and protocol between Panama and Portugal, signed on 27 August 2010, have become available. The treaty was concluded in the Spanish, Portuguese 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:

-   15% on dividends in general; reduced to 10% if the beneficial owner is a company holding directly at least 10% of the capital of the company paying the dividends;
-   10% on interest; and
-   10% on royalties.
-   income derived from professional services, consultancy, business-industrial advice, technical or management services or similar services may be subject to tax in the state where the services are performed up to 10% of the gross amount;
-   capital gains from the alienation of shares or similar participations may be subject to tax in the state of residence of the company provided that those shares or participations represent 25% or more of the capital of that company, but the tax so charged "may not exceed 5% of the value of the alienation of the 10 % of the net gains";
-   the term "permanent establishment" (PE) (Art. 5(3)) includes:
-   a building site, a construction, assembly or installation project, or supervisory activities in connection therewith, but only when such site, project or activities continue for more than 9 months;
-   the rendering of services in a State, including consultancy, by an enterprise through employees or other personnel engaged by the enterprise, but only when these employees or personnel are present in that State for the performance of the same or connected project, during a period or periods aggregating more than 9 months in any 12-month period; and
-   the use of a structure, installations, drilling rig, ship or other like substantial equipment for the exploration for, or exploitation of, natural resources; or for activities connected with that exploration or exploitation for a period or periods exceeding 9 months in any 12-month period; and
-   the definition of royalties includes software, films or tapes and other means of image or sound reproduction, drawings and the use of, or the right to use industrial, commercial or scientific equipment (Art. 12(3)).

Panama applies the exemption method for the avoidance of double taxation (Art. 22(1)). Portugal applies the credit method for the avoidance of double taxation (Art. 22(2)).

Neither treaty party may terminate this treaty during a period of 5 years starting from the date of its entry into force (Art. 29).

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