Dividends paid to non-resident foreign investors in Tunisia: tax regime, tax treaties and transfer formalities

The distribution of dividends to non-resident foreign investors is a common transaction in the context of international investments made in Tunisia. However, this transaction is subject to a set of tax rules, treaty provisions and foreign exchange formalities that must be properly understood in order to secure the transfer of funds abroad.

Common Note No. 2/2015 issued by the General Directorate of Taxes clarified the principles applicable to Tunisian-source income earned by residents of States that have concluded a double taxation treaty with Tunisia, particularly with respect to dividends.

1. Taxation of dividends paid to non-residents

Dividends distributed by a company resident in Tunisia to a foreign investor constitute Tunisian-source income that may be taxed in Tunisia in accordance with domestic law and, where applicable, the provisions of international tax treaties concluded by Tunisia.

Since the introduction of taxation on distributed profits, dividends paid to non-resident beneficiaries have been subject to withholding tax under the rules provided by Tunisian tax law.

2. Priority of double taxation treaties

Tunisia has concluded numerous double taxation treaties intended to prevent the same income from being taxed twice in two different States.

These treaties generally provide for:

• the allocation of taxing rights between the contracting States;
• withholding tax ceilings on dividends;
• mechanisms to avoid double taxation in the beneficiary's State of residence.

Dividends may therefore benefit from a reduced rate compared with the rate provided by Tunisian domestic law where the applicable treaty so provides.

3. Which withholding tax rate should be applied?

The rate provided by Tunisian domestic law

In the absence of the application of a tax treaty, dividends paid to a non-resident foreign investor are subject to withholding tax at the rate of 10%.

The principle of the most favorable rate

Where a double taxation treaty applies, it is necessary to compare:

• the withholding tax rate provided by the treaty;
• the withholding tax rate provided by Tunisian domestic law (10%).

The rate effectively applicable is the lower of the two rates.

Examples:

• if the treaty provides for a 5% rate, withholding tax will be limited to 5%;
• if the treaty provides for a 10% rate, the applicable rate will be 10%;
• if the treaty provides for a 15% rate, the applicable rate will remain limited to 10%, since Tunisian domestic law is more favorable to the taxpayer.

This rule is a fundamental principle of international taxation: the taxpayer may rely on the more favorable provision between domestic law and the tax treaty.

4. Evidence of tax residence: an essential condition

The application of treaty benefits is never automatic.

To benefit from treaty provisions, the foreign investor must prove that they are effectively tax resident in the State that has concluded the treaty with Tunisia.

This proof is provided by means of a certificate of tax residence issued by the competent tax authority of their country of residence.

This certificate must be:

• valid for the relevant financial year;
• submitted to the bank and the competent authorities whenever the treaty application is requested.

Without this document, the tax administration or the bank may refuse to apply the treaty rate and apply the ordinary rules of domestic law.

5. Formalities for transferring dividends abroad

The mere decision to distribute dividends is not sufficient to authorize their transfer outside Tunisia.

The bank responsible for the transfer must verify the origin of the investment, the tax regularity of the transaction and the compliance of the corporate documents of the distributing company.

For this purpose, a complete file must be submitted to the bank.

Documents to be submitted to the bank

1. The investment form

The investment form issued in connection with the foreign investment and registered with the Central Bank of Tunisia. This document makes it possible to establish:

• the origin of the invested funds;
• the status of foreign investor;
• the right to transfer income and proceeds from disposals.

2. The tax clearance certificate

The distributing company must justify its regular tax position by producing the tax clearance certificate or any equivalent document required by the banking institution.

3. The corporate income tax return

The bank may require the annual corporate income tax return corresponding to the financial year whose profits are being distributed. This return enables verification of the declared taxable result and the taxes paid.

4. The financial statements

The approved financial statements of the distributing company must be provided in order to demonstrate the existence of distributable profits.

5. The minutes of the general meeting

The bank generally requires the minutes of the general meeting that:

• approved the annual accounts;
• approved the allocation of profit;
• decided the distribution of profits;
• set the amount of dividends to be distributed.

6. The statutory auditor's report

Where a statutory auditor is legally appointed, their report must be submitted to the bank.

7. The certificate of tax residence

Where the beneficiary wishes to benefit from the provisions of a double taxation treaty, the certificate of tax residence must be included in the file.

The banking institution may request any additional document required by foreign exchange regulations or its internal compliance procedures.

6. Checks carried out by the bank

Before authorizing the transfer of dividends, the bank verifies in particular:

• the reality of the foreign investment;
• the validity of the investment form;
• the availability of distributable profits;
• the compliance of the distribution decision;
• the tax regularity of the distributing company;
• the correct calculation of the withholding tax;
• the possible entitlement to a reduced treaty rate.

Appendix: main treaty rates applicable to dividends

For indicative purposes, the tax treaties concluded by Tunisia generally provide for maximum withholding tax rates ranging from 5% to 15%, depending on the country concerned and sometimes on the level of participation held in the distributing company. These rates must always be verified against the treaty text in force at the time of distribution.

Country	Indicative treaty rate on dividends
France	Rate of the source country (Tunisia): 10%
Belgium	5% if the beneficiary is a company holding at least 10% of the capital — 15% in other cases
Luxembourg	10%
Netherlands	5% if the beneficiary is a company holding at least 10% of the capital — 20% in other cases
Germany	10% if the beneficiary is a company holding at least 25% of the capital — 15% in other cases — 27% exceptionally
Italy	15%
Spain	5% if the beneficiary is a company holding at least 50% of the capital — 10% in other cases
Switzerland	10%
Canada	15%
United Arab Emirates	0%
Qatar	0%
Saudi Arabia	5%
Turkey	12% if the beneficiary is a company holding at least 25% of the capital — 15% in other cases
AMU	Rate of the source country (Tunisia): 10%

Important: the rate effectively applicable is always the lower of the rate provided by the applicable tax treaty and the Tunisian domestic rate of 10%. Consequently, even where a treaty provides for a 15% rate, the withholding tax actually levied in Tunisia should not exceed 10%.

Conclusion

The payment of dividends to a non-resident foreign investor requires a simultaneous analysis of Tunisian domestic law, double taxation treaties and foreign exchange regulations. To benefit from a reduced treaty rate, the beneficiary must duly evidence their tax residence by means of a certificate issued by their tax administration.

Furthermore, transferring dividends abroad requires the preparation of a complete file including, in particular, the investment form registered with the Central Bank of Tunisia, the tax clearance certificate, the corporate income tax return, the approved financial statements, the minutes of the general meeting that decided the profit distribution, and the statutory auditor's report.

Careful preparation of these documents helps secure distribution operations and avoid any blockage when transferring funds abroad.