KARACHI: Pakistan and Czech Republic have implemented the convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and to promote and strengthen the relations between the two countries, Federal Board of Revenue (FBR) notified on Monday.
An official said the Convention on Avoidance of Double Taxation would come into force from July 01, 2016 and termed it an epoch-making event in the consolidation of economic relations between the two countries.
It would help Pakistani and Czech business companies and investors, who are engaged in several business and investment projects in Pakistan and the Czech Republic, to benefit from facilities and services under avoidance of double taxation and prevention of fiscal evasion.
According to the provisions of the convention, income derived by a resident of State-A from immovable property (including income from agriculture or forestry) situated in State-B may be taxed in State-B.
The profits of an enterprise of State-A will be taxable only in that state unless the enterprise carries on business in State-B through a permanent establishment situated therein. However, the profits of the enterprise may be taxed in the State-B but only so much of them as is attributable to the permanent establishment or sales in State-B of goods or merchandise of the same or similar kind as those sold through that permanent establishment.
Profits from the operation of ships or aircraft in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated. If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the State in which the home harbour of the ship is situated, or in the State of which the operator of the ship is a resident.
Dividends paid by a company of State-A to a resident of the State-B may be taxed in State-B. However, such dividends may also be taxed in State-A, but if the beneficial owner of the dividends is a resident of State-B, the tax so charged will not exceed 5.0 percent of the gross amount of the dividends if the beneficial owner is a company, which holds directly at least 25 percent of the capital of the company paying the dividends; 15 percent of the gross amount of the dividends in all other cases.
However, this would not affect the taxation of the company in respect of the profits out of which the dividends are paid.
Interest earnings, royalties and service fees arising in State-A and paid to a resident of State-B may be taxed in State-B. However, such interest may also be taxed in State-A according to the laws, but if the beneficial owner of the interest is a resident of State-B, the tax so charged shall not exceed 10 percent of the gross amount of the interest.
Capital gains derived by the resident of State-A from ventures in State-B may be taxes in State-B.