Conditions for applying double tax treaties

00000433 regarding the threshold and conditions in order to apply the benefits established in double tax treaties.

Generally, in order to apply automatically the benefits established in double tax treaties it is necessary to: (i) have the tax residence certificate of the beneficiary of the payment issued by the competent authority of the country of residence and properly apostilled; and, (ii) to comply with one of the following conditions:

1. Payment of dividends;

2. Payment of costs or expenses that, at the time of the withholding, are considered non-deductible for calculating the withholding agent’s income tax;

3. The contract which the payment is made is duly qualified; or

4. The sum of all payments made in favor of the same supplier in the same fiscal year, does not exceed the maximum threshold (US$565,750.00 for the year 2020).

Under this reform, from March 11, 2020 and up to 18 months later, if the withholding agent do not have the tax residence certificate of the beneficiary, at the time of withholding, it may apply the benefits established in the double tax treaty as long as they comply with one of the 4 conditions detailed above.

However, the withholding agent must obtain the tax residence certificate until March 11, 2022. Otherwise, the withholding agent must file a new tax return and pay the applicable tax plus interests.