A new income and capital tax treaty was signed by the U.K. and Tajikistan. The treaty stipulates taxing rights and powers and should help facilitate the flow of labor, investment, and capital between the two countries.
Her Majesty’s Revenue & Customs (HMRC) in the United Kingdom has confirmed that a new income and capital tax treaty between the U.K. and the Republic of Tajikistan was signed on 1 July 2014.1 It will come into force when both countries have completed their parliamentary procedures and exchanged diplomatic notes.
As employers send more and more employees to non-traditional assignment locations, the extension of the U.K.’s tax treaty network is essential in limiting the possibility of double taxation and helping simplify administration around such assignments.
The new treaty between the U.K. and Tajikistan helps to attribute taxing rights amongst the two countries. It should help mitigate double taxation for cross-border workers with respect to personal income taxes and capital gains taxes and clarify taxation with respect to retirement and annuity plan contributions and distributions. These provisions, and others in the treaty, will help to facilitate the flow of labor, investment, and capital between the two countries.
The treaty is based on the OECD model treaty and contains the standard OECD provisions relating to the exchange of information between the U.K. and the Republic of Tajikistan.
This newsletter covers the provisions that may concern international executives and their employers.
The treaty allows the source country to tax interest or dividends arising in that country to a resident of the other country at a rate not exceeding 10 percent in most cases. Royalties may be taxed at a rate not exceeding 7 percent.
Remuneration paid to employees on short-term international assignments may be exempt from tax in the country where such individuals are temporarily working. Thus, for example, a U.K. resident on assignment to Tajikistan will be exempt from tax in Tajikistan if the individual is present in Tajikistan for no more than 183 days in any 12-month period beginning or ending in the tax year. It will also be necessary for the remuneration to be paid by or on behalf of an employer who is not a resident of Tajikistan, and the costs of the remuneration must not be borne by a permanent establishment in Tajikistan of the employer.
Director’s fees paid to a resident of one country in his capacity as a director of a company that is a resident of the other country may be taxed in the country in which the company is resident.
The ‘Elimination of Double Taxation’ article in the treaty strengthens the provisions that may exist in domestic legislation of the respective countries, affording a potentially higher level of protection against double taxation.
The treaty allows relief for taxes paid to the U.K. by a resident of Tajikistan as a deduction from the taxes due in Tajikistan. The deduction will be equal to the lesser of the taxes paid on the income in the U.K. and the Tajik taxes payable on that income. For U.K. residents, the U.K. will give a credit against the overall U.K. tax liability for the Tajik taxes paid in accordance with the treaty, subject to the limitations of U.K. domestic law on foreign tax credits.
Periodic pension distributions paid to a resident of one of the contracting states will be taxable only in the state where the individual is resident. However, a lump-sum distribution will be taxed in the state in which the pension scheme is established.
The treaty does not provide for any relief for pension contributions.
Many U.K. treaties provide limited relief in relation to income that is taxable only if remitted to the United Kingdom. This treaty does not contain such a remittance clause.
The new treaty will enter into force once it has received parliamentary approval and has been ratified by both countries.
1 For the HMRC announcement, see: http://www.hmrc.gov.uk/taxtreaties/news/tajikistan-dta.htm .
The information contained in this newsletter was submitted by the KPMG International member firm in the United Kingdom.
© 2018 KPMG LLP, a United Kingdom legal liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.