0% Cost of Withholding tax on interest

Treatment of interests in the Venezuelan Tax Convention with Spain: 0% is the cost of interest withholding tax on loan transactions

The Agreement between Venezuela and Spain to avoid double taxation was entered into in June 15, 2004 and in its Protocol includes a most favoured nation clause.

Thus, Article 11 of the Agreement determines a 10% withholding on interest accrued on loans granted by any entity other than financial institutions, in which case the withholding rate is 4.95%.

However, Section VII of the Protocol attached to the Convention includes the key to this 0%:

"After the signature of this Convention, should a Contracting State conclude a Double Taxation Convention with a Member State of the European Union where the taxation is lower than that determined in Article 11, the provisions of the Convention entered into after this one shall also be applicable to this Convention from the date they enter into force."

After entering into the Agreement with Venezuela, Spain has concluded not only one but several Conventions with European Union State Members, which include a lesser withholding tax than the one stated in the Convention with Venezuela.

For example, the Agreement with Malta of 7 September 2006 and with Cyprus of 26 May 2014 establish, in both cases, a zero-rate withholding tax.

Specifically, Article 11 of each Convention provides as follows:

- Malta: "Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed only in that other State."

- Cyprus: "1. Interest arising in a Contracting State, the beneficial owner of which is a resident of the other Contracting State, may be taxed only in that other State."

For that reason, withholding tax on interests in loan operations between Venezuela and Spain was de facto reduced to 0% by the ratification of the Agreement with Malta in September 7, 2006.