Procedure for application of double taxation agreements on non-resident income from sources of the Republic of Tajikistan
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Since its independence the Republic of Tajikistan has signed double taxation agreements with 35 countries worldwide. This includes the European Union, CIS, Arab and Asian countries:
Double Tax Treaty (Agreement, Convention) is a bilateral international agreement regulating direct taxation of revenues and properties of companies and individuals - residents of one jurisdiction in the territory of another.
The aim of such agreements is to avoid double taxation through tax exemptions enshrined in the document.
Double taxation is a situation when tax liabilities of the same entity under comparable taxes arise simultaneously in two countries for the same taxable asset. That is, a company generating revenues overseas becomes liable to pay tax twice - once in the country where the income was generated, and again in the country of its tax residency.
Using this mechanism, the taxpayer enjoys the right to pay a single tax on one or all categories of own revenue, which is specified in the double taxation treaty. The income is taxed in one of the two countries only or a reduced withholding tax is applied. Note that double tax agreements do not provide for indirect taxes (VAT, excise).
All double taxation treaties are based on two standard documents, notably the United Nations Model Tax Convention and the OECD Model Tax Convention on Income and Capital (OECD Model Convention).
The application of these agreements is based on the requirements of a national legislation, which is not always clear to non-residents. Moreover, some businesses and individuals mistakenly believe that to apply the provisions of the agreements it is sufficient to provide a supporting document of a resident-taxpayer of another member-state of the agreements. Consequently, the tax authorities turn down requests for application of double taxation.
Our goal is to elucidate the application of agreements on income of non-residents from sources of the Republic of Tajikistan, and to help non-residents to follow the required procedures correctly.
Section VI of the Tax Code of the Republic of Tajikistan (hereinafter - the TC of the RT) specifically regulates the implementation of international agreements on double taxation and tax evasion on income and property (assets) recognized by Tajikistan.
This section of the TC of the RT is divided into three parts:
1) Articles 172, 176-177 of the TC of the RT – Taxing the income of non-residents gained in the Republic of Tajikistan without opening a resident office and the application of international treaty on taxation.
2) Articles 173-175 of the TC of the RT - application of international agreements on double taxation irrespective of the fact of a non-resident having a resident office in the Republic of Tajikistan in relation to revenues from shipping services in international transportation, dividends, interest and royalty, net operating surplus via resident office.
3) Article 178 of the TC of the RT - A tax clearance certificate on taxes paid in the Republic of Tajikistan when taxes are paid by a non-resident in Tajikistan, and in order to avoid double taxation in their country of residence at their request the tax authorities shall provide a statement on income and taxes paid from sources located in the territory of the Republic of Tajikistan.
Implementation of double taxation agreements in cases when non-resident's activity in the Republic of Tajikistan does not include a resident office in Tajikistan is specified in Articles 172, 176-177 of the Tax Code of the Republic of Tajikistan. The procedure is very time consuming and, as it shows, a minor evasion from the rules may be used to argue against the application of the provisions of the agreement.
Implementation of the agreement consists of two stages: 1) before income payment to non-resident and 2) after income payment to non-resident by a tax agency from sources in Tajikistan (refund of taxes withheld at the source of payment).
At the first stage, before the income can be paid to the non-resident, they are expected to apply to the respective tax authority at the place of registration of a tax agent (or to the Tax Committee under the Government of Tajikistan) and submit the following documents:
1) Request for application of the Agreement in an arbitrary form (can be submitted through a tax agent)
2) Legalized document confirming residency or apostille of non-resident.
3) Copies of Articles of incorporation
4) Copies of agreements (contracts, deeds) for works (services) or other purposes.
This process involves a thorough review of the submitted documents by the tax authorities in line with the agreements and TC of the RT. At this stage, the tax authority essentially looks at whether the non-resident has a resident office in Tajikistan and is in fact a beneficiary of income from sources in Tajikistan.
A concept of “resident office" is used in bilateral tax agreements to determine the right of one country to tax the profit of a company in another. Specifically, a company’s profit in one country shall be taxable in another only if a company has a resident office in the latter and only to the extent that these profits are attributable to the resident office in question. According to the provisions of double taxation agreements and Art.17 of the Tax Code, regardless of whether non-resident is registered with the tax authorities or not, if its business activity involves establishing a resident office in Tajikistan, the income of non-resident is subject to taxation in the Republic of Tajikistan.
According to the provisions of Part 12 Art. 1 of the Tax Code, a foreign resident, whose country has entered an international double taxation agreement with Tajikistan, shall be entitled to apply such an agreement provided that the main (ultimate) owner of this entity is an entity or entities - residents of this foreign country for the purposes of the agreement and if one of the following conditions is met:
1) majority of the entity's shares or other equity interests are regularly traded on a stock exchange in the foreign country in question.
2) both of the following conditions are met:
a) the entity is active in the foreign country via its employees and facilities in the country.
b) the entity's income from sources in Tajikistan is linked to the entity's active operations in the foreign country.
3) the agreement establishes limited exemptions or has other provisions preventing abuse of the agreement.
Based on the submitted documents, if the tax authority green-lights the application of double taxation agreement, the tax agent shall pay the amount of income to the non-resident, while withholding the relevant taxes.
At the second stage, when the income is paid to a non-resident and relevant taxes are withheld by the tax agent, one shall apply to the tax authority at the place of registration of a tax agent and submit the following documents authorizing any tax refunds for the benefit of a non-resident:
1) Copies of contracts for works (services) or other activities (actions).
2) Documents supporting the non-resident's performance (services and other activities).
3) Income Reports from the shipment services in international freight and on the territory of Tajikistan.
4) Tax agent shall submit tax authorities the accounting documents verifying the accrued and (or) paid income and withheld taxes.
The aforesaid documents shall be submitted within 10 working days after completion of works and rendering of services.
The tax authority, within 15 calendar days of receipt of information from a tax agent, shall inspect the non-resident's documents and notify the tax agent of its decision within the same period of time. Upon receipt of a positive decision of the tax authority on the refund of withheld tax, the tax agent shall repay a non-resident the amount of withheld tax.
In the event of a negative decision by the tax authority, a tax agent shall remit to the budget the tax withheld from a non-resident. At the request of a non-resident the tax authority can provide a certificate on taxes withheld in the territory of Tajikistan.
If a non-resident or tax agent disagrees with the negative decision of the tax authority at the first or second stage, it shall have the right to appeal the decision within 30 calendar days as provided by Articles 33 and 159-160 of the Tax Code of Tajikistan.
Implementation of international agreements (treaties) on double taxation is in practice quite a complicated procedure and HLB Tajikistan is available to assist you in this matter.