Luxembourg ratified the first Income and Capital Tax Treaty with Kazakhstan on 16 May 2013. The treaty was signed on 3 May 2012 and entered into force on 10 December 2013. The provisions of the treaty will be applicable from 1 January 2014 onwards.

The definition of a permanent establishment under the treaty includes “service permanent establishments” in line with the 2001 United Nations Model Double Taxation Convention between Developed and Developing Countries (UN Model).

According to the treaty the withholding tax on dividends will be limited to 5% provided that the recipient is the beneficial owner holding directly at least 15% of the capital of the company paying the dividend. The 5% rate is the lowest possible rate under Kazakhstan’s tax treaties and in other cases the dividend withholding tax will be limited to 15%. Kazakhstan also levies 15% withholding tax on dividends under its domestic law. Under the domestic law of Luxembourg, dividends distributed by Luxembourg companies to companies in treaty jurisdictions are exempt from withholding tax under certain conditions.

The treaty also provides that the withholding tax on interest will be limited to 10% which is the lowest possible rate under Kazakhstan’s tax treaties. Kazakhstan levies 15% withholding tax on interest under its domestic law and in general, Luxembourg does not levy withholding tax on interest under its domestic law.

Also, according to the treaty the withholding tax on royalties will be limited to 10%. The 10% rate is the lowest possible rate under Kazakhstan’s tax treaties. Kazakhstan levies 15% withholding tax on royalties paid to nonresident corporations under its domestic law and in principle, Luxembourg does not levy withholding tax on royalties under its domestic law.

The definition of royalties also includes payments in respect of equipment rental.