The principal concepts of the treaty include:

• A time limit for forming a permanent establishment of 12 months for construction projects and 6 months for services;
• Withholding tax on passive income of 10 % at maximum (exceptions apply to interest); and
• Application of the credit method in respect of double taxation.

Furthermore, from the New Year onwards, the most-favoured-nation clause treatment will be applied in relation to the Treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital between the Czech Republic and Chile (specifically Section 11 (7) of the Treaty which makes it possible to apply more favourable terms based on the treaty signed at a later date between Chile and Japan). As a result, from 1 January 2019 onwards, provided all the stipulated conditions are met, the rate of 10% of gross interest will be applied between the Czech Republic and the Republic of Chile for the purposes of Section 11 (2) (b) of the above stated tax treaty.

In this context, the Ministry of Finance has also updated the Summary of Valid Treaties, which is available on its website.

The article is part of dReport – January 2019, Tax news; Grants and investment Incentives.