Spain and Kuwait signed a first-time income and capital tax treaty and protocol on 26 May 2008 in Kuwait. The treaty was concluded in the Spanish, Arabic and English languages, each text having equal authenticity. The treaty generally follows theOECD Model Convention. Details of the Treaty are summarized below.
The maximum rates of withholding tax are:
| - | 5% on dividends in general and 0% if the recipient is a company holding directly at least 10% of the paying company (Art. 10(2) of the Treaty); | |
| - | 0% on interest (Art. 11(1) of the Treaty); and | |
| - | 5% on royalties (Art. 12(2) of the Treaty) |
Deviations from the OECD Model include that:
| - | in the case of Kuwait, a resident means a Kuwaiti national who is domiciled in Kuwait and a company which is incorporated in Kuwait (Art. 4(1)(a) of the Treaty); | |
| - | a PE includes a place relating to the exploration of natural resources if the activities of that nature continue for a period or periods aggregating more than 6 months in any 12-month period (Art. 5(3) of the Treaty); | |
| - | a building site, a construction, installation or assembly project constitutes a PE only if the site or project lasts for more than 9 months (Art. 5(4) of the Treaty); | |
| - | the furnishing of consultancy services, by an enterprise through its employees or other personnel engaged by the enterprise for such purpose, constitutes a PE, but only where those activities continue for the same project for a period or periods aggregating more than 6 months in any 12-month period. (Art. 5(5) of the Treaty); | |
| - | payments for the use of, or the right to use, industrial, commercial or scientific equipment are expressly considered as business income (Art. 7(1) of the Treaty); | |
| - | royalties are deemed to arise in a Contracting State when the payer is a resident of that State. If, however, the person paying the royalties, whether or not being a resident of one of the Contracting States, has a PE in one of the Contracting States in connection with which the liability to pay the royalties was incurred and the royalties are borne by that PE, the royalties will be deemed to arise in the State in which the PE or fixed base is situated (Art. 12(5) of the Treaty); and | |
| - | capital gains derived by a resident of a state from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other state may be taxed in that other state; gains from the alienation of shares or other rights, which directly or indirectly entitle the owner of such shares or rights to the enjoyment of immovable property situated in a state, may be taxed in that state (Art. 13(4) of the Treaty). |
Both states provide for the credit method to avoid double taxation. In addition, subject to Spanish domestic law, Spain grants an underlying tax credit in respect of dividends paid by a company resident in Kuwait to a company resident in Spain (Art. 23 (2)(a) of the Treaty). If the income derived or capital owned by a resident of Spain is, under the Treaty, exempt from tax, Spain may nevertheless take into account the exempt income or capital in calculating the amount of tax on the resident's other income or capital (exemption-with-progression) (Art. 23(2)(b) of the Treaty). Spain will only avoid double taxation with respect to the Zakat paid by a resident of Spain if documentary evidence is provided regarding the effective payment of such tax to the Kuwait Zakat House or to the Kuwait tax authorities. In this regard, double taxation will be granted after a certificate from the Kuwait Ministry of Finance stating such payment has been submitted (Art. 23(2)(c) of the Treaty).
The treaty will apply for a minimum period of 5 years (Art. 29 of the Treaty).