The Double Taxation Relief (Taxes on Income) (Estonia) Order 1994

Explanatory Note

(This note is not part of the Order)

The Convention with Estonia is set out in the Schedule to the Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property and gains from the alienation of such property may be taxed in the country in which the property is situated (Articles 6 and 13).

Air transport and shipping profits are to be taxed only in the residence state of the operator (Article 8).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

The rate of tax imposed in the country of source on dividends derived by a resident of the other country shall not exceed 5 per cent of the gross amount of the dividends when the beneficial owner is a company controlling at least 25 per cent of the voting power in the company paying the dividends. In all other cases the rate of tax shall not exceed 15 per cent of the gross amount of the dividends (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is not to exceed 10 per cent of the gross amount of the interest flowing to the other country. Certain categories of interest (e.g. interest paid to the Government of the other country) will be exempt from tax in the source state (Article 11).

The rate of tax imposed in the country of source on royalties flowing to the other country shall not exceed 5 per cent of the gross amount of royalties paid in respect of industrial, commercial and scientific equipment. In all other cases, such royalties may also be taxed in the source country, but, in general, at a rate not exceeding 10 per cent of the gross amount (Article 12).

Capital gains arising from the disposal of movable property are normally to be taxed only in the country of the taxpayer’s residence. Gains arising from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country may be taxed in that other country (Article 13).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 14 and 15). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 16). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are exercised, with certain exemptions (Article 17). Occupational pensions (other than those paid in respect of Government Service) and annuities are to be taxed only in the recipient’s country of residence (Article 18). Government Service remuneration and pensions are normally taxable only by the paying Government (Article 19). Certain payments made to visiting students and business apprentices are to be exempt from tax in the country visited (Article 20). Income derived from the activities of professors and teachers engaged in teaching or research (subject to certain conditions and limitations) may be exempt from tax in the country in which those activities are carried out (Article 21). Other income not specified in the Convention (with the exception of income paid out of trusts or the estates of deceased persons in the course of administration) shall be taxable only in the taxpayer’s country of residence, as long as it is not associated with a permanent establishment in the country of source (Article 22).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed by the other country. In the case of dividends, the United Kingdom will give credit for underlying tax paid in Estonia where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the company paying the dividends. (Article 23).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 26), and for consultation (Article 27) and exchanges of information (Article 28) between the taxation authorities of the two countries.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of the procedures required by its law to bring the Convention into force. The Convention is to take effect in the United Kingdom on or after 1st April in respect of corporation tax and on or after 6th April for income tax and capital gains tax in the calendar year next following that in which it enters into force. The date of entry into force will in due course be published in theLondon, EdinburghandBelfast Gazettes.