On the basis of the communication of the Ministry of Finance of the Czech Republic on the Treaty on avoidance of double taxation between the Czech Republic and Belarus (the Treaty), Belarus has temporarily suspended the implementation of certain articles of the Treaty.
Belarus has announced the suspension of the implementation of Articles 10 (dividends), 11 (interest) and 13 (gains on alienation of property) of the Treaty. This suspension is effective for the period from 1 July 2024 to 31 December 2026. On the part of the Czech Republic, there is a similar suspension, i.e. of the same Articles and for the same period. Therefore, it will not be possible to apply the exclusion of double taxation to such income because there cannot be a situation where the income has been taxed in accordance with the Treaty.
No information has yet been issued by the GFD in relation to the suspension of the implementation of certain articles of the Treaty. On the basis of the information issued by the GFD on the Russian Treaty, we expect the following practical implications in the period.
Example 1
A Czech company pays a dividend to a company in Belarus. The tax withholding date is 25 June 2024. The Czech company has obtained from the Belarusian company a certificate of tax domicile, an affidavit of beneficial ownership of the income, and the Commercial Register shows that the Belarusian company holds at least 25% of the capital of the Czech company. According to the Treaty, the Czech taxpayer applies a 5% rate on gross dividend income.
Example 2
A Czech company pays a dividend to a company in Belarus. The tax withholding date is 3 July 2024. The Czech company has obtained from the Belarusian company a certificate of tax domicile, an affidavit of beneficial ownership of income, and the Commercial Register shows that the Belarusian company holds at least 25% of the Czech company's capital. The Czech taxpayer follows the ITA and applies a 15% withholding tax on gross dividend income.
In the period from 1 July 2024, only the rules under the ITA apply, i.e. the person treats Belarus as a non-contracting state for the given types of income and applies the tax paid in Belarus in full as an expense (if the nature of the income allows it).
monika.lodrova@bdo.cz
Belarus has announced the suspension of the implementation of Articles 10 (dividends), 11 (interest) and 13 (gains on alienation of property) of the Treaty. This suspension is effective for the period from 1 July 2024 to 31 December 2026. On the part of the Czech Republic, there is a similar suspension, i.e. of the same Articles and for the same period. Therefore, it will not be possible to apply the exclusion of double taxation to such income because there cannot be a situation where the income has been taxed in accordance with the Treaty.
No information has yet been issued by the GFD in relation to the suspension of the implementation of certain articles of the Treaty. On the basis of the information issued by the GFD on the Russian Treaty, we expect the following practical implications in the period.
Czech income payers (taxpayers) paying income to a Belarusian tax resident
Until 30 June 2024, Czech taxpayers shall apply the provisions of the Treaty for withholding tax, subject to the Treaty conditions. As of 1 July 2024, they will exclusively apply the Czech Income Tax Act (ITA). The decisive moment for the inclusion of income in one of the periods above will probably be the moment of withholding tax.Example 1
A Czech company pays a dividend to a company in Belarus. The tax withholding date is 25 June 2024. The Czech company has obtained from the Belarusian company a certificate of tax domicile, an affidavit of beneficial ownership of the income, and the Commercial Register shows that the Belarusian company holds at least 25% of the capital of the Czech company. According to the Treaty, the Czech taxpayer applies a 5% rate on gross dividend income.
Example 2
A Czech company pays a dividend to a company in Belarus. The tax withholding date is 3 July 2024. The Czech company has obtained from the Belarusian company a certificate of tax domicile, an affidavit of beneficial ownership of income, and the Commercial Register shows that the Belarusian company holds at least 25% of the Czech company's capital. The Czech taxpayer follows the ITA and applies a 15% withholding tax on gross dividend income.
Czech tax residents with income from sources in Belarus
Czech tax residents are required to declare their worldwide income in the Czech Republic. Thus, a situation may arise in which they declare in their Czech tax return income such as dividend, interest, or gain on alienation of property that was taxed in Belarus.Method of eliminating or mitigating double taxation depending on the period of realisation of income
For the period until 30 June 2024, the same procedure as in previous years is followed, i.e. Belarus is considered a contracting state and all the benefits of the Treaty, including the exclusion of double taxation, are applied.In the period from 1 July 2024, only the rules under the ITA apply, i.e. the person treats Belarus as a non-contracting state for the given types of income and applies the tax paid in Belarus in full as an expense (if the nature of the income allows it).
Time of income generation
In determining the time or period of realisation of income, we expect that a similar approach to the Russian treaty (see previous article) will be allowed. Thus, if it is not possible to determine the time of realisation of the income in Belarus, the Czech rules may be applied.monika.lodrova@bdo.cz