(QCOSTARICA) Global Tax News –  German’s Finance Ministry on October 24 confirmed that the double tax avoidance treaty between Germany and Costa Rica will apply from January 1, 2017.

The treaty, signed on February 13, 2014, is the first such agreement between Germany and Costa Rica, and contains the OECD standard for exchange of information between the two country’s tax authorities.

Withholding taxes on dividends will generally be capped at 15%. However, a five percent rate will apply if the recipient of the dividend is a company (other than a partnership) that directly owns at least 20% of the paying company’s shares.

Withholding tax on interest payments will generally be limited to five percent. Meanwhile, withholding tax on royalty payments will be limited at 10%.

Costa Rica has traditionally not been a party to any double taxation treaties. It signed a double tax treaty with Spain in 2004 which came into force in 2010. Costa Rica also signed an exchange of information treaty with the United States with a view to promoting the necessary interchange of tax information and to ensure that the correct level of taxation is levied in both countries as well as to eradicate tax evasion.

In April, 2006, as the country mulled a controversial switch from a territorial tax system to one where it would collect tax on worldwide income, it emerged that the authorities had begun negotiations with several countries to avoid the double taxation of income.

By 2009 Double Taxation Agreements had been signed with Germany and Romania, but these are awaiting ratification. Negotiations are continuing with Israel, South Korea, Switzerland and Canada.

Click here for the latest on Costa Rica tax treaties from the online tax treaty resource.

Sources: Tax-news.com, Lowtax.net