Corporate tax in Panama

Summary

Corporate Income Tax Rate (%) 25 (a)
Capital Gains Tax Rate (%) 10
Branch Tax Rate (%) 25 (a)
Withholding Tax (%) (b)
Dividends (a)
On Nominative Shares 10
On Bearer Shares 20
Interest 12.5 (c)
Royalties from Patents, Know-how, etc. 12.5
Payments on Leases 12.5
Payments for Professional Services 12.5
Branch Remittance Tax 10
Net Operating Losses (Years)
Carryback 0
Carryforward 5 (d)

a) See Section B for details concerning deemed dividend tax.

b) The withholding taxes apply only to nonresidents. Nonresident companies are entities not incorporated in Panama.

c) Certain interest is exempt from tax. See Section B.

d) For details, see Section C.

Taxes on corporate income and gains

Corporate income tax. Corporations, partnerships, branches of foreign corporations, limited liability companies and any other entity considered a legal entity by law are subject to income tax on any profits or income generated in or derived from Panama. Income that does not arise in Panama or is not derived from Panama is not subject to tax in Panama. However, dividends aris­ing from foreign income that are distributed by Panamanian companies holding a Notice of Operation (formerly Commercial License) are subject to tax (for further details, see Dividends).

Corporate income tax rates. Income tax is assessed at a flat rate of 25% on net taxable income. For details regarding net taxable income, see Section C.

Taxpayers with annual taxable income greater than PAB1,500,000 are required by law to calculate the tax using two methods and pay the higher of the amounts calculated under these methods. This calculation must be included in their annual income tax return. The following are the two methods:

  • Applying the corresponding tax rate to the net taxable income
  • Applying the corresponding tax rate to 4.67% of the total income

Headquarters Law. The Headquarters Law contains a special tax-incentive regime for multinational companies that establish their headquarters in Panama (Multinational Company Headquarters [Sede de Empresas Multinacionales, or SEM] regime).

Under the Headquarters Law, a headquarters is the office that ren­ders services, such as management services, to operations based in a geographically limited area or to the global operation as a whole. Under the law, a headquarters may provide only specified services, including the following:

  • Technical assistance
  • Financial and accounting services
  • Logistics or warehousing services to the multinational group
  • Marketing and publicity
  • Plot or construction design

These services must be part of the ordinary course of business of the parent company or its affiliates.

Under the Headquarters Law, the headquarters must belong to a multinational company with either regional or international opera­tions or significant operations in the country of origin. To operate under the Headquarters Law, a license granted by the Commission of Licenses of the Multinational Companies of the Ministry of Commerce and Industry must be obtained. Com panies granted a license are exempt from income tax for services rendered to enti­ties domiciled abroad that do not generate taxable income in Panama. However, if the services rendered by the company affect the production or conservation of Panamanian in come and if the price or value of the services provided is considered to be a de­ductible expense by the services recipient, the income related to those services is considered to be Panamanian-source income. In this case, the recipient of the services must withhold 25% of 50% of the amount paid to the company under the Headquarters Law regime (effective tax rate of 12.5%).

Companies granted a license to operate under this regime, are exempt from value-added tax (VAT). However, the VAT exemp­tion applies only to the export of services. The VAT exemption does not apply to imports made by the headquarters or the sale or purchase of goods or services rendered in Panama.

In addition, the Headquarters Law creates a special immigration regime for foreign employees working for the beneficiary com­pany in Panama. Permanent visas can be obtained for expatriates with an employment contract. After five years, they can obtain permanent residency. These employees are exempt from income tax and social taxes if they receive all of their compensation directly from the head office outside of Panama and not through the local payroll.

Foreigners who have special temporary visas are not subject to income tax if they satisfy the following conditions:

  • From an office established in Panama, they direct transactions that take place or produce effects abroad.
  • They receive their income directly from abroad.

Contributions to the social security regime are not required for such foreigners.

Capital gains

Shares and quotas. Under Section 701(e) of the Panamanian Fiscal Code, capital gains derived from the transfers of shares or quotas are subject to capital gains tax if the shares or quotas were issued by a company that has operations or assets located in Panama. The tax applies regardless of the place where the trans­action takes place. Capital gains are taxed in accordance with the following rules:

  • Capital gains derived from transfers of shares in Panama that constitute taxable income are subject to income tax at a reduced rate of 10%.
  • The buyer must withhold 5% from the purchase price as an ad vance income tax payment and remit the withholding tax to the tax authorities within 10 days following the date on which the payment was made according to the transaction documents. Failure to comply with this obligation transfers the liability to the seller of the shares.
  • The 5% tax withheld by the buyer can be credited against the final 10% capital gain tax. However, the seller may elect to con­sider the 5% tax to be the final income tax payment.
  • If the 5% tax withheld by the buyer is higher than the 10% in­come tax on the capital gain, the taxpayer may claim a cash refund or credit the excess against other tax liabilities. The tax credit may also be transferred to another taxpayer.
  • Income derived from capital gains is not included in the seller’s ordinary income for the fiscal year, because the tax due is paid through withholding.

Indirect transfers of shares “economically invested in Panama” are also subject to Panamanian capital gains tax, even if the seller and buyer are nonresidents. Specific rules apply to compute the gain if one or several entities that are being transferred generate both Panamanian-source income and foreign-source income. In this case, the tax base is the proportion of Panamanian-source in­come determined by using the greater amount resulting from the following two methods:

  • The equity amount of the entities that earn taxable income in Panama divided by the total equity of the transaction
  • The proportion of assets economically invested in Panama divided by the total assets of the transaction

Movable assets. Capital gains derived from transfers of movable assets are subject to income tax at a reduced rate of 10%.

Real estate transfer tax. The sale of real estate located in Panama is subject to a 2% property transfer tax. The 2% property transfer tax rate is applied to the higher of the following amounts:

  • Sales price set forth in the public deed of transfer
  • The cadastral value of the property on the date of the acquisi­tion, plus any increase in value derived from improvements, plus 5% per year computed on the sum of the cadastral value and the improvements

To execute the deed of transfer before a Notary Public, the seller of real estate must submit evidence to demonstrate that the cor­responding transfer tax and capital gains tax have been paid.

The real estate transfer tax is not imposed on the first transfer of new houses and commercial establishments if the transfer occurs within the two-year period after the occupation permit is issued.

Sales of homes and business premises by taxpayers engaged in real estate business. For the sale of home properties by taxpayers in the real estate business, the following rates are applied to the higher of the total value of the transfer or the land value.

Higher of transfer or land value Rate (%)
PAB0 to PAB35,000 0.5
PAB35,000 to PAB80,000 1.5
Over PAB80,000 2.5

The rate imposed on taxpayers in the real estate business for sales of new business premises is 4.5%.

The above rates apply if building permits are issued on or after 1 January 2010.

Ordinary taxpayers that are not engaged in the trade or business of the purchase and sale of real estate. For ordinary taxpayers that are not engaged in the trade or business of the purchase and sale of real estate, tax is calculated at a rate of 10% on taxable income. This income is not taken into account in determining the taxpayer’s taxable income, and the taxpayer may not deduct the transfer tax or transfer fees incurred.

Advance income tax of 3% must be paid on the greater of the total value of the transfer or cadastral value.

The above tax can be considered as final payment or the surplus can be reimbursed if the amount of the tax exceeds 10% of tax­able income.

Administration. The calendar year is the fiscal year. However, under certain circumstances, a special fiscal year may be request­ed from the Panamanian tax authorities. Businesses earning in­come subject to Panamanian tax must file annual in come tax returns even if the net result for the period is a loss. Corporations having no Panamanian taxable income or loss are not required to file income tax returns. Tax returns are due 90 days after the end of the fiscal year. The regulations provide for an ex tension of time of up to one month to file an income tax return if the corpo­ration pays the estimated tax due.

Monthly interest is charged for late payments. The interest charges are calculated based on rates established periodically by the tax authorities. These rates equal the local reference banking annual interest rate for commercial financing as defined by the Panamanian Banking Superintendence plus two percentage points. If an extension is obtained, any tax that is due when the return is filed is subject to the above-mentioned interest rate. Late payments of taxes made after 1 January 2015 are subject to a 10% surcharge. This 10% surcharge is imposed in addition to the late payment interest.

Tax returns must be filed on electronic forms provided by the Panamanian tax authorities. The taxpayer must file an estimated tax return for the following year together with the income tax return. The total amount of estimated tax for the following year, which normally cannot be lower than the income declared in the current-year return, must be paid in full or in three equal install­ments by 30 June, 30 September and 31 December.

Dividends. All companies that have a Notice of Operations or Commercial License (the prior name of the Notice of Operations) or that generate taxable income in Panama must pay dividend tax at a fixed rate of 10% for nominative shares and 20% for bearer shares. Dividends distributed from foreign-source income, export operations and certain types of exempt income are subject to a final 5% withholding tax. Subsequent distributions of these divi­dends are not taxed if they arise from dividends that already have been subject to the above-mentioned withholding.

Dividends distributed by Real Estate Investment Companies (Sociedades de Inversión Inmobiliaria) are subject to a 10% with­holding tax.

Dividends distributed by entities in free-trade zones from local-source income, foreign-source income, export activities and cer­tain types of exempt income are subject to a final 5% withholding tax.

The following are exempt dividends:

  • Dividends distributed by Panamanian companies that do not re­quire a Notice of Operations or Commercial License and that do not produce any taxable income in Panama
  • Dividends distributed by entities under the tax-incentive system for multinational companies that establish headquarters in Panama (SEM regime; see Headquarters Law)
  • Dividends distributed by entities under the Panama-Pacifico Special Economic Area (Howard Regime) from activities that are exempt under such regime

Article 733-A of the Fiscal Code, which was repealed in 2009, is reinstated. As a result, exemptions from withholding tax granted by special laws on dividend distributions from Panamanian enti­ties to entities or individuals located abroad apply only if the recipients cannot claim a tax credit in their country of residence for such dividend distributions. To prove that that no tax credit is available in the recipient’s country of residence for a dividend, the beneficial owner must submit a formal tax opinion issued by an independent tax expert of such country, which indicates that a tax credit cannot be claimed.

If a tax treaty applies, the treaty measures prevail over the domes­tic rules.

Withholding taxes. The withholding tax rate is 12.5% for interest and royalties paid to nonresident companies.

Payments to nonresidents for professional services rendered in Panama or from abroad are subject to a 12.5% withholding tax if certain requirements are met. In principle, the withholding obli­gation applies if the following requirements are met:

  • The payments made to nonresident beneficiaries must be related to the generation of Panamanian-source income for the payer.
  • The payment made to the nonresident beneficiaries must be considered and reported as deductible expenses by the Panama­nian payer.

However, a tax reform established several exceptions to these re­quirements. As a result, payments made by public entities (entities that are not income taxpayers) and taxpayers with losses are sub­ject to the 12.5% withholding tax even if those entities have not deducted the payments as expenses. In addition, taxpayers that have several sources of income are required to apply a 12.5% withholding tax if they are in a loss situation even though they did not claim a deduction for the payments.

No withholding tax obligation applies to entities that generate foreign-source income only and entities or individuals exempt from income tax in accordance with an international treaty or special law.

In addition, exemptions granted by special laws from withholding taxes on interest, royalties, professional fees and similar payments from Panamanian entities or individuals to entities or individuals located abroad apply only if the recipient cannot claim a tax credit in their country of residence for withholding taxes on such income. To prove that no tax credit is available in the recipient’s country of residence for such withholding taxes, the beneficial owner must submit a formal tax opinion issued by an independent tax expert of such country, which indicates that the tax paid in Panama would not be credited such country.

The tax must be withheld by the enterprise that receives the ben­efits of the loans, leases or professional services, and must be remitted to the government within 10 days after the tax is with­held or the account is credited, whichever occurs first.

Interest income derived from the following investments is exempt from withholding tax:

  • Savings and time deposits held in Panamanian banks
  • Panamanian government securities
  • Securities issued by companies registered with the National Securities Commission, if the securities were acquired through a securities exchange established to operate in Panama
  • Interest and commissions paid by banking institutions in Panama to international banks or financial institutions established abroad, in connection with loans, bankers’ acceptances and other debt instruments
  • Interest paid to official or semiofficial institutions of interna­tional bodies or foreign governments
  • Interest paid to foreign investors, if the capital on which such interest is paid is exclusively intended for housing projects for people of low income

For a loan granted by a domestic bank or related Panamanian party, no withholding tax is applicable, because the financial ser­vices payment is taxed in the lender’s annual income tax return.

Except in the case of financing, if a local company does not take a deduction for an expense, no withholding tax applies.

Foreign tax relief. Because Panama taxes only income sourced in Panama, regardless of where payment is received or the residence of the taxpayer, no credit or deduction is available for any foreign taxes paid, except in international transport activities.

Determination of trading income

General. Taxable income or revenue includes all income derived from business activities in Panama less expenses incurred wholly and exclusively in the production of taxable income or the con­servation of its source.

Net taxable income is the difference or balance that results on deducting the following from gross income or general earnings:

  • Foreign income
  • Exempt income
  • Deductible costs and expenses

Revenues must be recognized in the year in which they are earned. Construction companies may recognize long-term contract reve­nues either by the percentage-of-completion method, percentage-of-invoicing method or the completed-contract method. The installment-sales method of recognizing revenue is not permitted by the Panamanian Fiscal Code.

Earnings derived from the following activities are not considered to be Panamanian source:

  • Invoicing by an office established in Panama for sales of mer­chandise or goods for amounts greater than cost, provided the merchandise never enters Panama
  • Directing by an office established in Panama of transactions that are completed, consummated or take effect outside Panama
  • Distributing dividends or profits derived from income not gen­erated in Panama, including income derived from the two activ­ities noted above, to the extent that the company distributing dividends does not hold a Notice of Operation

All expenses incurred wholly and exclusively in the production of taxable income or in the conservation of its source are allowed as deductions for income tax purposes, regardless of where the ex pense is incurred. Expenses of one tax year may not be deduct­ed the following year, except those which, by their nature, cannot be determined precisely in the current tax year.

Interest is a deductible expense if it is incurred on loans or credits necessary for the production of taxable income. If non-taxable interest income from savings accounts or certificates of deposit is earned, the only interest deductible is the excess of the interest expense over the non-taxable interest income. Royalties are de­ductible, except for those paid abroad by free-zone companies.

Inventories. Inventories may be valued by using the first-in, first-out (FIFO), last-in, first-out (LIFO) or average-cost methods. However, the Panamanian tax authorities may allow other meth­ods. After a system of valuation is adopted, it may not be changed for five years.

Provisions. The only deductible reserves are those for deprecia­tion, bad debts (1% of credit sales, up to 10% of total receivables) of entities other than banks and financial institutions and certain fringe benefits. Reserves for personal insurance and contingen­cies are not deductible.

Tax depreciation and amortization allowances. Depreciation allow­ances are permitted for capital expenditures incurred in the pro­duction of taxable income. Depreciation may be computed by using the straight-line, declining-balance or sum-of-the-years’ digits methods. Depreciation is computed over the useful life of an asset. The minimum useful lives are 3 years for movable assets and 30 years for buildings.

Start-up expenses may be amortized over a period of five years. Improvements to leased properties must be amortized over the period of the lease. Purchasers of intangible assets, such as patents and goodwill, may claim straight-line amortization deductions for such assets when they derive income from such assets.

Relief for losses. Tax-loss carrybacks are not recognized under Panamanian law. Carryforwards of net operating losses are allow­ed. Taxpayers can deduct net operating losses over a period of five years following the year in which the loss is incurred. The maxi­mum annual deduction is 20% of the relevant loss, but the amount of the deduction may not exceed 50% of the taxable income for the year.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax; tax on the sale or transfer
of any chattel, services and imports of goods;
certain goods and services are specifically
exempt, such as medical services and fixed
telephony that is not for commercial use
7
Notice of Operation (formerly Commercial
and Industrial Licenses); paid annually on
corporate capital (up to a maximum amount
of PAB60,000)
2
Notice of Operation for companies operating
under a free-trade zone regime; paid annually
on corporate capital (up to a maximum tax
of PAB50,000)
1
Municipal tax; based on the nature of the
business activity and the amount of sales
(up to a maximum tax of PAB3,000 a month)
Various
Social security contributions and education
tax, based on wages or salaries; paid by
Employer 12.5
Employee 9.75
Excise taxes
Imports and sales of alcoholic beverages 10
Imports and sales of tobacco and cigarettes 15
Imports of jewels, cars, motorcycles, jet skis, boats (including sailboats), non-commercial airplanes, cable and microwave television
services and mobile phones
Various
Public accommodations and lodging services 10

Miscellaneous matters

Foreign-exchange controls. Panama does not impose foreign-exchange controls.

Transfer pricing. Cross-border intercompany transactions con­ducted by Panamanian taxpayers are subject to transfer-pricing obligations if the transactions result in income, costs or expenses that are taken into account in the determination of taxable income.

The transfer-pricing rules are based on the arm’s-length principle established in the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multi­national Enterprises and Tax Administrations.

An annual statement of transactions (Form 930) with related par­ties must be submitted to the tax authorities within six months after the end of the fiscal year (if the fiscal year coincides with the calendar year, the deadline is 30 June). In addition, taxpayers must prepare a transfer-pricing study and make it available to the tax authorities.

If Form 930 is not filed, a 1% fine capped at PAB1 million applies to the gross amount of the transactions with related parties.

Treaty withholding tax rates

Panama has entered into tax treaties with Barbados, the Czech Republic, France, Ireland, Israel, Korea (South), Luxembourg, Mexico, the Netherlands, Portugal, Qatar, Singapore, Spain, the United Arab Emirates and the United Kingdom. Panama has signed a tax treaty with Italy, but it is not yet in effect. Panama has concluded treaty negotiations with Austria, Bahrain and Vietnam.

The following are withholding tax rates under Panama’s tax treaties.

Dividends

%

Interest

%

Royalties

%

Barbados 7.5 (a) 0/5/7.5 (j)(k) 0/7.5 (t)
Czech Republic 10 0/5/10 (w)(x) 10
France 5/15 (b) 0/5 (l) 5
Ireland 5 0/5 (y) 5
Israel 5/15/20 (ee) 0/15 (ff) 15
Korea (South) 5/15 (c) 0/5 (m) 0/10 (u)
Luxembourg 5/15 (b) 0/5 (l) 5
Mexico 5/7.5 (c) 0/5/10 (n)(o) 10
Netherlands 0/15 (d) 0/5 (p) 5
Portugal 10/15 (e) 10 (q) 10
Qatar 6 (f) 6 (r) 6
Singapore 5 (g) 5 (s) 5
Spain 0/5/10 (h)(i) 5 (v) 5
United Arab Emirates 5 (aa) 0/5 (bb) 5
United Kingdom 0/15 (cc) 0/5 (dd) 5
Non-treaty
countries (z)
10/12.5 12.5 12.5

a) The rate equals 75% of the statutory nominal rate applicable at the time of dividend distribution. The rate is reduced to 5% if the beneficial owner of the dividends is a company that owns at least 25% of the capital of the payor of the dividends. The rates do not apply to dividends paid on bearer shares.

b) The rate is reduced to 5% if the beneficial owner of the dividends is a com­pany (other than a partnership) that owns at least 10% of the capital of the payor of the dividends.

c) The rate is reduced to 5% if the beneficial owner of the dividends is a com­pany (other than a partnership) that owns at least 25% of the capital of the payor of the dividends.

d) The rate is reduced to 0% if the beneficial owner of the dividends is a com­pany that owns at least 15% of the capital of the payor of the dividends (ad­ditional specific conditions apply).

e) The rate is reduced to 10% if the beneficial owner of the dividends is a com­pany that owns at least 10% of the capital of the payor of the dividends.

f) The rate is reduced to 0% if the beneficial owner of the dividends is the other state, a political subdivision, a local authority or the central bank of the other state, a pension fund, an investment authority or any other institution or fund that is recognized as an integral part of the other state, political subdivision or local authority, as mutually agreed.

g) The rate is reduced to 4% if the beneficial owner of the dividends is a com­pany (other than a partnership) that owns at least 10% of the capital of the payor of the dividends.

h) The rate is reduced to 5% if the beneficial owner of the dividends is a com­pany (other than a partnership) that owns at least 40% of the capital of the payor of the dividends.

i) The rate is reduced to 0% if the beneficial owner of the dividends is a com­pany that owns at least 80% of the capital of the payor of the dividends (ad­ditional specific conditions apply).

j) The rate is reduced to 5% if the interest is derived by a bank that is a resident of Barbados.

k) The rate is reduced to 0% if the beneficial owner of the interest is a contract­ing state, the central bank of a contracting state, or a political subdivision or local entity of the contracting state or if the interest is paid to another entity or body (including a financial institution) as a result of financing provided by such institution or body in connection with an agreement concluded between the governments of the states.

l) The rate is reduced to 0% with respect to the following:

  • Interest paid to or by the state, a local authority or central bank
  • Interest paid on sales on credit
  • Interest paid by a financial institution to another financial institution
  • Interest paid to the state as a result of financing provided in relation to an agreement between the governments of the states

(m) The rate is reduced to 0% with respect to the following:

  • Interest paid to the state, a local authority, central bank or a public financial institution
  • Interest paid on sales on credit
  • Interest paid to entities (including financial institutions) as a result of financ­ing provided in relation to an agreement between the governments of the states

n) The rate is reduced to 5% if the interest is derived by a bank that is a resident of Mexico.

o) The rate is reduced to 0% with respect to interest paid to the state, a political subdivision or local entity of the state, the central bank or specific credit institutions.

p) The rate is reduced to 0% with respect to the following:

  • Interest paid to the state, a local authority or the central bank
  • Interest paid on sales on credit
  • Interest paid to the state as a result of financing provided in relation to an agreement between the governments of the states
  • Interest paid to pension funds

q) The rate is reduced to 0% with respect to interest paid to the state, a political subdivision or local entity, or the central bank.

r) The rate is reduced to 0% with respect to the following:

  • Interest paid to the state or a political subdivision or local authority of the state
  • Interest paid to specific credit institutions
  • Interest paid on sales on credit
  • Interest paid by a financial institution to another financial institution
  • Interest paid as a result of financing provided in relation to an agreement between the governments of the states

s) The rate is reduced to 0% with respect to interest paid to the government or to banks.

t) The rate is reduced to 0% with respect to royalties including royalties for scientific works related to biotechnology industry.

u) The rate is reduced to 3% with respect to royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment.

v) The rate is reduced to 0% with respect to the following:

  • Interest paid to or by the state, a local authority or central bank
  • Interest paid on sales on credit
  • Interest paid by a financial institution to another financial institution
  • Interest paid to the state as a result of financing provided in relation to an agreement between the governments of the states
  • Interest paid to pension funds

w) The rate is 5% if the beneficial owner is a bank that is a resident of the other contracting state.

x) The rate is reduced to 0% if any of the following circumstances exists:

  • Interest arises in a contracting state and is paid to a resident of the other contracting state that is the beneficial owner thereof, and such interest is paid in connection with the sale on credit of merchandise or equipment.
  • Interest is paid to the government of the other contracting state, including a political subdivision or local authority thereof, the central bank or a finan­cial institution owned or controlled by such government.
  • Interest is paid to a resident of the other state in connection with a loan or credit guaranteed by the government of the other state, including a political subdivision or local authority thereof, the central bank, or a financial insti­tution owned or controlled by such government, if the loan or credit is granted for a period of not less than four years.

y) The rate is reduced to 0% if any of the following circumstances exists:

  • The beneficial owner of the interest is a contracting state, the central bank of a contracting state, or a political subdivision or local authority of such state.
  • Interest is paid with respect to the sale on credit of merchandise or equip­ment to an enterprise of a contracting state.
  • Interest is paid to other entities or bodies (including financial institutions) as a result of financing provided by such institutions or bodies in connec­tion with agreements concluded between the governments of the states.
  • Interest is paid to a pension fund established in the other contracting state to provide benefits under pension arrangements recognized for tax pur­poses in that other contracting state.

z) See Section A.

(aa) The rate is reduced to 5% if the beneficial owner of the dividends is a resi­dent of the other contracting state.

(bb) The rate is reduced to 5% if the beneficial owner of the interest is a resident of the other contracting state. The rate is reduced at 0% if any of the follow­ing circumstances exists:

  • The beneficial owner of the interest is the government, a political subdivi­sion or a local authority of the other contracting state.
  • The interest is paid with respect to the sale on credit of merchandise or equipment to an enterprise of a contracting state.
  • The interest is paid to financial institutions and other bodies as a result of financing provided by such institutions or bodies in connection with agree­ments concluded between the governments of the contracting states. (cc) The rate is 15% if the beneficial owner of the dividends is a resident of the other contracting state. The withholding tax rate is reduced to 0% if either of the following circumstances exists:
  • The beneficial owner of the dividends is a company that is a resident of the other contracting state and that holds directly at least 15% of the capital of the entity paying the dividends, and other requirements are satisfied.
  • The beneficial owner of the dividends is a contracting state, a political sub division or local authority thereof, or a pension scheme.

(dd) The rate is reduced to 5% if the beneficial owner of the interest is one of the following persons:

  • An individual
  • A company whose principal class of shares is regularly traded on a recog­nized stock exchange
  • A financial institution that is unrelated to, and dealing wholly indepen­dently with, the payor
  • A company other than those mentioned above, subject to conditions The rate is also reduced to 5% if the beneficial owner of the interest is a resident of the other contracting state and any of the following circum­stances exists:
  • The interest is paid by a contracting state or a political subdivision or local authority thereof.
  • The interest is paid by a bank in the ordinary course of its banking busi­ness.
  • The interest is paid on a quoted Eurobond.

The rate is reduced to 0% if any of the following circumstances exists:

  • The beneficial owner of the interest is a central bank of the contracting state or any of its political subdivisions or local authorities.
  • The interest is paid with respect to the sale on credit of merchandise or equipment to an enterprise of a contracting state.
  • The interest is paid to other entities or bodies (including financial institu­tions) as a result of financing provided by such entities or bodies in con­nection with agreements concluded between the governments of the con­tracting states.
  • The beneficial owner of the interest is a pension scheme.

(ee) The rate is reduced to 15% if the beneficial owner of the dividends is a resident of the other contracting state. The rate is reduced to 5% if the ben­eficial owner is a pension fund that is a resident of the other contracting state. A 20% withholding tax rate applies if dividends are distributed by a Real Estate Investment Company and if the beneficial owner holds less than 10% of the capital of the Real Estate Investment Company.

(ff) The standard rate is 15%. Interest payments to specific entities and interest paid on traded corporate bonds are exempt (0% rate).