Irish – Zambian DTA entered into force on December 23, 2015

The Irish Revenue has published a statement announcing that on December 23, 2015 the Convention between Ireland and the Republic of Zambia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains (Hereafter: the new DTA) as concluded on March 31, 2015 entered into force on December 23, 2015. The DTA will replace the old Agreement for the Avoidance of Double Taxation stemming from 1971.

Based on Article 29 of the new DTA (“ENTRY INTO FORCE”) the fact that the DTA entered into force on December 23, 2015 means that the provisions shall have effect:
(a) in Zambia:

(i) in respect of taxes withheld at source, for amounts paid or credited on or after January 1, 2016;
(ii) in respect of other taxes, for taxable periods beginning on or after January 1, 2016 next following the calendar year in which this Convention enters into force.

(b) in Ireland:

(i) in respect of income tax, the universal social charge and capital gains tax, for any year of assessment beginning on or after January 1, 2016;
(ii) in respect of corporation tax, for any financial year beginning on or after January 1, 2016.

Below we will discuss some of the provisions of the DTA of which we think they might interest our readers.

Taxes covered
Based on Article 2, Paragraph 3 of the new DTA (“TAXES COVERED”), the existing taxes to which the DTA shall apply are:
(a) in the Republic of Zambia:
the income tax; and
(b) in Ireland:

(i) the income tax;
(ii) the universal social charge;
(iii) the corporation tax; and
(iv) the capital gains tax.

Paragraph 4 of Article 2, subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the DTA in addition to, or in place of, the existing taxes.

Permanent establishment
Paragraph 3 of Article 5 of the new DTA (“PERMANENT ESTABLISHMENT”) determines that the term “permanent establishment” shall be deemed to include:
(a) a building site, a construction, assembly or installation project or any supervisory activity in connection with such site, project or activity, but only where such site, project or activity continues for a period of more than 183 days;
(b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by an enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within the Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned;
(c) for an individual, the performing of services in a Contracting State by that individual, but only if the individual’s stay in that State, for the purpose of performing those services, is for a period or periods aggregating more than 183 days within any twelve-month period commencing or ending in the fiscal year concerned;
(d) an installation or structure used for the exploration for natural resources provided that the installation or structure continues for a period of not less than 183 days.

Immovable property
Article 6, Paragraph 1 of the DTA (“INCOME FROM IMMOVABLE OF PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

Article 13, Paragraph 1 of the new DTA (“CAPITAL GAINS”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 of the new DTA and situated in the other Contracting State may be taxed in that other State.

Article 13, Paragraph 4 subsequently arranges that gains derived by a resident of a Contracting State from the alienation of:
(a) shares, other than shares quoted on a recognised stock exchange, deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State; or
(b) an interest in a partnership or trust deriving more than 50 per cent of its value directly or indirectly from immovable property situated in the other Contracting State, may be taxed in that other State.

Dividends
With respect to withholding taxes on dividends Paragraph 2 of Article 10 the new DTA (“DIVIDENDS”) a.o. determines the following:
“However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 7.5 per cent of the gross amount of the dividends.”

Interest
Paragraph 2 of Article 11 of the new DTA (“INTEREST”) maximizes the interest withholding tax that a Source State is a allowed to withhold over interest payments to a maximum of 10% of the gross amount of the interest if the beneficial owner of the interest is a resident of the other Contracting State.

Royalties
Paragraph 2 of Article 12 of the new DTA (“ROYALTIES”) maximizes the withholding tax that a Source State is allowed to withhold over Royalties to a maximum of 10% of the gross amount of the royalties if the beneficial owner of the royalties is a resident of the other Contracting State.

Paragraph 4 of Article 12 subsequently arranges that notwithstanding the provisions of paragraph 2, in the case of payment of royalties in respect of any copyright of scientific work, any patent, trade mark, design or model, plan, secret formula or process or information concerning industrial, commercial or scientific experience, the tax charged shall not exceed 8 per cent of the gross amount of the royalties.

Other
The new DTA also contains an Article regarding Miscellaneous Rules Applicable to certain Offshore Activities (Article 21). Furthermore the new DTA arranges for a Mutual Agreement Procedure (Article 25) as well as for the Exchange of Information (Article 26).

Click here to be forwarded to the text of the new DTA as available on the website of the Irish Revenue, which will open in a new window.