The new protocol (the "Protocol") to the tax treaty
(the "Treaty") for the avoidance of double taxation
between Luxembourg and Poland was signed on 7 June 2012. The
Protocol updates the Treaty in line with the current OECD standards
with respect to the taxation of capital gains on real estate
companies and the exchange of information. The Treaty also notably
switches from the exemption method to the credit method for the
elimination of double taxation on certain incomes earned by Polish
The most salient changes can be summarized as follows:
The reduced withholding tax rate on dividend distributions is
lowered from 5% to 0% when the parent company holds 10% of the
share capital of the paying subsidiary for an uninterrupted period
of 24 months preceding the dividend payment. The maximum rate of
15% in all other cases remains unchanged. For interests and
royalties, the Protocol provides for a reduced 5% withholding tax
rate (instead of 10% currently).
The Protocol attributes the taxing rights to the source State
for capital gains on disposal of shares of real estate companies,
i.e. companies deriving more than 50% of their value directly or
indirectly from immovable property situated in the source State.
Such clause may have an impact on existing real estate structures
involving Luxembourg holding companies.
With respect to Polish residents, the method for elimination of
double taxation will switch from the exemption to the credit method
for dividends, interests, royalties, business income or income from
The Protocol introduces the standard OECD clause on exchange of
information upon request.
The Protocol provides a limitation of benefits clause that will
disallow treaty benefits to income received in relation to an
The Protocol will enter into force upon exchange of instruments
of ratification the mutual notification upon the completion of
domestic procedures of enactment. The provisions regarding
withholding taxes shall be applicable as from the first day of the
second month following the date of entry into force while
provisions on other taxes shall be applicable as from 1 January of
the tax year following the entry into force.
While the Protocol is not expected to be applicable before 2013,
a number of existing structures will have to be revisited in the
light of the Protocol. This include in particular real estate
structures involving Luxembourg companies holding directly or
indirectly properties located in Poland and structures taking
advantage from the exemption in Poland of dividend distributed by
Luxembourg companies under the current treaty.
Wildgen would be pleased to assist you in this process.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Recent changes in Cypriot legislation have not had a significant impact on the international status of Cyprus as a reputable financial centre which offers one of the most attractive tax regimes in Europe and an extensive network of double tax treaties.
In accordance with its agreement with international lenders, Cyprus has made a number of changes to its tax rates.
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