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Iraq-Netherlands

29 July 2019

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Update - Tax Treaty between Iraq and the Netherlands

The income tax treaty between Iraq and the Netherlands was signed on 1 July 2019. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Netherlands income tax, wages tax, company tax, and dividend tax and covers Iraqi income tax, real estate tax, and taxes imposed under Law no. (19) of 2010 on income of foreign contracting companies in Iraq.

Residence

The treaty includes the provision that if a company is a resident of both Contracting States, its residence for the purpose of the treaty will be determined by mutual agreement between the competent authorities, having regard to its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company shall not be entitled to any relief or exemption from tax provided by the treaty, except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 15%, with an exemption where the beneficial owner of the dividends is a company directly holding at least 10% of the paying company's capital or is a pension fund (exemption does not apply to dividends received by an investment institution)
  • Interest - 5%, with an exemption where interest is paid:
    • in connection with the sale on credit of any merchandise or equipment;
    • on any loan or credit of whatever kind granted by a bank;
    • to the Government of the other Contracting State, including any political subdivision or local authority thereof, the Central Bank or any financial institution owned or controlled by that Contracting State;
    • to a resident of the other State in connection with any loan or credit guaranteed by the Government of the other State, including any political subdivision or local authority thereof, the Central Bank or any financial institution owned or controlled by that Contracting State;
    • to a pension fund.
  • Royalties - 7.5%

Capital Gains

The following capital gains derived 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; and
  • 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 other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Iraq applies the credit method for the elimination of double taxation while the Netherlands may apply the exemption or credit method depending on the type of income and the applicable provisions of its domestic law.

Arbitration

Article 22 (Mutual Agreement Procedure) includes the provision that if any issues of a case cannot be resolved under MAP within two years from the presentation of a case by the competent authority of one Contracting State to the competent authority of the other State, then the person that submitted the case may request that the case be submitted to arbitration.

Refunds

Article 26 (Miscellaneous Rules) includes the provision that if tax has been withheld in excess of the amount of tax chargeable under the provisions of Articles 10 (Dividends), 11 (Interest), or 12 (Royalties), then applications for refund must be lodged within five years after the end of the calendar year in which the excess tax was withheld.

Limitation on Benefits

Article 26 (Miscellaneous Rules) includes the provision that a benefit under the treaty shall not be granted in respect of an item of income if, having regard to all relevant facts and circumstances, obtaining of that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention.

Entry into Force and Effect

The treaty will enter into force on the last day of the month following the month in which the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

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