Tax Treaty between the Republic of Azerbaijan and the Kingdom of the Netherlands
The bilateral and multilateral relations between the Republic of Azerbaijan and the Kingdom of the Netherlands began blossoming in the early 1990s. Following the Netherlands' recognition of Azerbaijan's independence in 1991, diplomatic relations were established in 1992. Since then, both political relations and economic cooperation have rapidly flourished. It is no coincidence that, driven by thriving business developments, the two countries came together to sign a convention in 2008 for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. This convention came into effect two years later, in 2010.
The scope of this convention covers residents of one or both of the contracting states and addresses taxes on income and capital. Through this agreement, taxes on total income, total capital, gains, dividends, appreciation from the alienation of movable and immovable property, and wages or salaries are exempted from double taxation for both legal and physical persons. Article 4 of the Convention defines who qualifies as a "resident" for the purposes of receiving such benefits. In this context, a resident is anyone who is subject to tax in a particular country based on criteria such as residence, domicile, place of management, incorporation, or registration. However, this term does not include individuals who are only subject to tax on income or property derived from within that country, without being taxed on their worldwide income or assets.
Attention should also be paid to the concept of a "permanent establishment" as detailed in Article 5. The article provides a comprehensive list of what may be considered a permanent establishment, including places such as a branch, office, factory, or place of management, provided that the location is a fixed source for the business conducted there.
Chapter V of the Convention, which addresses the elimination of double taxation, is particularly important. Article 23(1) allows the Netherlands to include income earned in Azerbaijan in the tax calculation for its residents. However, Article 23(2) ensures that double taxation is avoided. In essence, if you are a resident of the Netherlands and your income is from immovable property, business profits, dividends, interest, royalties, capital gains, independent or dependent personal services, pensions, government services, or other types of income covered by the convention, the Netherlands will reduce the Dutch tax owed by giving you a credit or exemption for the tax already paid in Azerbaijan. This rule similarly applies to residents of Azerbaijan with equivalent types of income.
The convention also includes non-discrimination provisions, ensuring that residents are treated fairly and are not subject to more burdensome taxation and related requirements than nationals of the other state in similar circumstances. Furthermore, the effectiveness of these provisions relies on transparent and cooperative information exchange between the competent authorities of the contracting states. This mutual effort helps prevent tax and fiscal evasion, ensuring that individuals and businesses pay the correct amount of taxes and do not conceal income or assets.
In summary, the focus on bilateral economic cooperation between Azerbaijan and the Netherlands is in an constant growth. The flourishing relationship yields tangible benefits, such as the conclusion of conventions, treaties, and agreements between the contracting states. Ultimately, these efforts create a level playing field, avoid burdensome taxation, and prevent fiscal evasion, making both countries more attractive for business.