A Double Taxation Agreement (DTA) is an agreement between two or more states, intended to prevent or reduce the impact of double taxation on individuals and companies that earn income within two or more countries. These agreements intend to promote economic cooperation and ensure fair taxation by clarifying taxpayers’ tax obligations in the participating countries.
This article aims to offer relevant information regarding double tax treaties in different Western Balkans countries.
The Importance of Double Tax Agreements
Double taxation agreements eliminate the risk of individuals and businesses being taxed twice on their income and capital across different countries. As a result, they play an important role in promoting international economic activity.
DTAs set a maximum limit on the withholding tax that contracting states can impose, known as the residual tax. The primary purpose of a DTA is to allocate the right to tax between the contracting countries, prevent discrepancies, ensure equal rights and security for taxpayers, and combat tax evasion.
Understanding the Role of Double Tax Agreements in Preventing Double Taxation
In most countries, double taxation treaties help avoid double taxation. These treaties also commonly permit the tax liability in your country of residence that you incur to be credited against the tax liability paid in the country where work activity is carried. In certain situations, the income generated in the country in which you are working could be taxed only in that country and would not be taxable in your home country. Tax rates, however, can vary from country to country, and you will pay the rate in your place of work country if the rate in your residence country is higher, even when you are entitled to some relief or exemption in your residence country. To obtain relief, you will have to demonstrate residence and evidence of taxes already paid so it is in your interest to contact tax authorities in respect of the kind of proof that is needed. Currently, there are two models used worldwide to draft the content of DTAs around the world, offering a standard framework for creating treaties and resolving tax conflicts between countries:
- OECD Model Tax Convention on Income and Capital. (2017)
- UN Model Double Taxation Convention between Developed and Developing Countries (2017)
Taxes Covered by Double Tax Agreements
Double Tax Agreements typically cover:
Income Taxes: This includes income taxes on a range of income sources including wages, salaries, business profits, pension, dividends, interest, and royalties. Double Tax Agreements frequently specify reduced tax rates or exempt treatments for some classes of income to prevent double taxation.
Capital Taxes: This includes taxes on the transfer of assets, including capital gains taxes, inheritance taxes, and wealth taxes. Double Tax Agreements can assign taxing rights regarding capital gains to the country of residence of the subject asset or the residence of the seller, according to the details of the agreed-upon conditions.
Double Tax Agreements in Western Balkan Countries
Albania
Albania has signed Double Tax Treaties with 46 countries and 42 are currently in force, including Belgium, China, Finland, and Estonia. Each of these treaties applies different withholding tax rates on dividends, interest, and royalties. These DTAs are generally aligned with the OECD Model Tax Convention, addressing issues such as tax residency, permanent establishment, and withholding tax rates on dividends, interest, and royalties.
In August 2024, Albania updated its rules for applying Double Tax Treaties (DTTs) with a new Directive 11/2024 that replaces outdated procedures from 20 years ago. The changes simplify the process for taxpayers, who now only need to notify tax authorities instead of seeking prior approval when applying for treaty benefits. Key requirements include submitting documents like a DTT application form, service contracts, and a tax residence certificate.
To read more on the DTAs signed by Albania, click here.
North Macedonia
North Macedonia has signed Double Tax Treaties with 49 countries, including Albania, Austria, Germany, and Hungary. Each of these treaties applies different withholding tax rates on dividends, interest, and royalties. These DTAs are generally aligned with the OECD Model Tax Convention, addressing issues such as tax residency, permanent establishment, and withholding tax rates on dividends, interest, and royalties.
To read more on the DTAs signed by North Macedonia, click here.
Kosovo
Kosovo has signed Double Tax Treaties with 20 countries, including Luxembourg, the Netherlands, Turkey, and the United Kingdom. Each of these treaties applies different withholding tax rates on dividends, interest, and royalties. Regarding international tax standards, Kosovo currently uses both models of tax convention.
To read more on the DTAs signed by Kosovo, click here.
If you are considering Albania, North Macedonia, or Kosovo to live and/or conduct your business, it is advisable to consult with a professional on investment opportunities that best suit your needs. Our firm specializes in international taxation, and our team is ready to assist with any related matters. If needed, we can connect you with top professionals to support your business activities in Albania, North Macedonia, or Kosovo. Please feel free to contact us.
