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25 March 2010
Three More Treaties for Hong Kong
Since the enactment in January this year of The Inland Revenue (Amendment) Ordinance 2010, which enabled the Hong Kong Government to adopt the 2004 OECD-recommended model Article on Exchange of Information (“EoI”), discussions with potential treaty partners have accelerated. Indeed, three agreements have been signed so far in March 2010:
- Brunei Darussalam – March 20
- Kingdom of the Netherlands – March 22
- Indonesia – March 23
All of these agreements have incorporated the 2004 OECD EoI article.
Now that the 2004 OECD model has been adopted, the Government expects that more Comprehensive Double Taxation Treaties (“CDTAs”), using this new standard, will be signed. Where it is unlikely that comprehensive agreements are to be concluded in the near future, the Government is seeking to conclude limited DTAs for airline and shipping income. As at March 23, 2010, there are 28 such agreements on airline income, six agreements on shipping income and two agreements on airline and shipping income.
The following table shows the withholding tax applicable to dividends, royalty income and interest under Hong Kong’s eight treaties.
Withholding Tax Rates Under Hong Kong Treaties
|
Country
|
Dividends
|
Royalties
|
Interest
|
| Belgium |
5-15%(1)
|
5%
|
10%
|
| Brunei Darussalam |
Nil
|
5%
|
5-10%(2)
|
| Indonesia |
5-10%(3)
|
5%
|
10%
|
| Luxembourg |
0-10%(4)
|
3%
|
Nil
|
| Mainland China |
5-10%(5)
|
7%
|
7%
|
| The Netherlands |
0-10%(6)
|
3%
|
Nil
|
| Thailand |
10%
|
5-10%(8)
|
10-15%(7)
|
| Vietnam |
10%
|
7-10%(9)
|
10%
|
| Explanatory notes | |
| Note (1) | 5% if the beneficial owner is a company that directly holds at least 10% of the capital of the company paying the dividends. In all other cases, 15%. |
| Note (2) | 5% if the recipient is a bank or financial institution. In all other cases, 10%. |
| Note (3) | 5% if the beneficial owner is a company directly owning at least 25% of the capital of the company paying the dividend. In all other cases, 10%. |
| Note (4) | 0% if the beneficial owner is a company directly owning at least 10% of the capital of the company paying the dividends or a participation with an acquisition cost of at least EUR1.2 million in the company paying the dividends. In all other cases, 10%. |
| Note (5) | 5% if the beneficial owner is a company that directly holds at least 25% of the capital of the company paying the dividends. In all other cases, 10% |
| Note (6) |
0% if the beneficial owner is a company directly owning at least 10% of the capital of the company paying the dividends, provided that:
|
| Note (7) | 10% if the recipient is a financial institution or insurance company, or in respect to arm’s-length transactions concerning the sale of equipment, merchandise or services. In all other cases, 15%. |
| Note (8) | 5% if for the use of or the right to use, any copyright of literary, artistic or scientific work. 10% if for the use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process, and 15% in all other cases. |
| Note (9) | 7% if for the use of, or the right to use, any patent, design or model, plan, secret formula or process. In all other cases, 10%. |