March 2014

Double Tax Treaty between Luxembourg and Laos

Tax Alert

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On 14 June 2013 Luxembourg ratified the first Income and Capital Tax Treaty with Laos, signed on 4 November 2012. The Treaty will enter into force on 21 March 2014. The Treaty will be applicable from 1 January 2015 onwards.

It is interesting to note that Luxembourg has been the first European Union Member State to sign a double tax treaty with Laos.

The main features of the Treaty are described hereafter.

Permanent establishment

  • The Treaty definition of permanent establishment includes “service permanent establishments” in line with the 2001 United Nations Model Double Taxation Convention between Developed and Developing Countries (UN Model).[1]

Dividend

  • The Treaty provides that the withholding tax on dividends will be limited to 5% provided that the recipient is the beneficial owner which holds directly at least 10% of the capital of the company paying dividend. The 5% rate is the lowest possible rate under Laos’ tax treaties. In other cases, the withholding tax will be limited to 15%.
  • Laos levies 10% withholding tax on dividends under its domestic law.
  • Under Luxembourg domestic law, dividends distributed by Luxembourg companies to companies in treaty jurisdictions are exempt from withholding tax under certain conditions.[2]

 Interest

  • The Treaty provides that the withholding tax on interest will be limited to 10%.
  • Laos levies 10% withholding tax on interest under its domestic law.
  • In principle, Luxembourg does not levy withholding tax on interest under its domestic law[3].

Royalties 

  • The Treaty provides that the withholding tax on royalties will be limited to 5%. The 5% rate is the lowest possible rate under Laos’ tax treaties.
  • Laos levies 5% withholding tax on royalties paid to non-resident corporations under its domestic law.
  • In principle, Luxembourg does not levy withholding tax on royalties under its domestic law[4].

Exchange of information

  • The Treaty contains an exchange of information provision in line with article 26 of the OECD Model Convention.

Entry into force

  • The provisions of the Treaty will enter into effect as from 1 January of the year following the year in which the Treaty entered into force, i.e., from 1 January 2015.


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[1]The furnishing of services, including consultancy services, by an enterprise of a territory through employees or other personnel or persons engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) in the other territory for a period or periods aggregating more than six months within any twelve-months period.”

[2] The parent company has to be fully subject to tax corresponding to Luxembourg income tax, and has to hold, or commit to hold, at least 10% of the share capital or a participation with an acquisition cost of at least EUR 1.2 million for at least 12 months.

[3] A 15% withholding tax is due in Luxembourg on certain types of bonds issued by a Luxembourg company.

[4] A 10% withholding tax is due in Luxembourg on revenue derived by non-Luxembourg resident taxpayers from some literary, artistic and sportive activities carried out in Luxembourg.