Montenegro: Montenegro-Azerbaijan DTT analysis
In March 2013 Montenegro and Azerbaijan signed a treaty for the avoidance of double taxation (a double tax treaty (DTT)) aimed at strengthening economic and trade relations between the two countries. The agreement came into force in January 2014. The agreement is applicable on taxes in both countries, including corporate income tax and personal income tax, as well as capital gains tax regardless of the type and method of collection.
In line with the agreement, a resident is considered to be a physical person or a legal entity which is a taxpayer in the country due to the residency, temporary residency or seat of the company management.
In situations when a physical person is resident of both countries, the person will be liable for taxation in the country of permanent residency.
Permanent establishment (PE), in line with the DTT, is a permanent place from which a company fully or partially undertakes its business activities, including a company seat, branch, representative office, factory, workshop, mine, ship or any other place from which exploration of natural resources is undertaken. Additionally, a PE will be considered to exist at a construction site where works are being performed for a period exceeding 12 months.
Any income generated from immovable property located in either of the contracting states may be subject to tax in the state where the immovable property is located.
Corporate profits are taxed in the contracting state in which they are realised except if a company has business activities in the other state via a permanent establishment. If the company is undertaking activities in the other state through a permanent unit, the corporate profits will be taxed in that other country up to the amount of the profit generated in that state.
The treaty provides 10% withholding tax rates (WHT) for dividends (Article 10), interest (Article 11) and royalties (Article 12).
Exchange of information defined in Article 26 will allow the Competent Authorities of both states to exchange information deemed relevant for the administration or enforcement of domestic laws in relation to taxes, as long as such laws are not in breach of the DTT.
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