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Hong Kong signs comprehensive agreement with
Luxembourg on avoidance of double taxation (with photo)
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Hong Kong today (November 2) signed an agreement with Luxembourg
for the avoidance of double taxation and the prevention of fiscal
evasion with respect to taxes on income and capital.
The Secretary for Financial Services
and the Treasury, Professor K C Chan, signed the agreement on behalf
of the Hong Kong Special Administrative Region Government. The Luxembourg
Minister of the Economy and Foreign Trade, Mr Jeannot Kreckˆm, signed
on behalf of his Government.
This is the fourth comprehensive
agreement for the avoidance of double taxation (CDTA), concluded
by Hong Kong. It will eliminate double taxation instances encountered
by Hong Kong and Luxembourg investors, and bring about tax savings
and certainty in tax liabilities in connection with cross-border
economic activities. It will also help foster closer economic and
trade links between the two places, and provide added incentives
for Luxembourg enterprises to do business or invest in Hong Kong,
and vice versa.
In the absence of a CDTA, profits
earned by Luxembourg residents in Hong Kong are subject to both
Hong Kong and Luxembourg income tax. Profits of Luxembourg companies
doing business through a branch in Hong Kong are fully taxed in
both places. Under the agreement, Luxembourg will provide full exemption
to her residents for such income.
In the absence of a CDTA, Hong Kong
residents receiving dividends from Luxembourg not attributable to
a permanent establishment there are subject to a Luxembourg withholding
tax, which is currently at 20%. Under the agreement, such withholding
tax rate will be reduced to 10%. If the recipient is a company holding
10% or more of the share capital of the paying company (or having
invested EUR1.2 million or more in such company), the withholding
tax rate will be reduced to nil.
Profits from international shipping
transport earned by Hong Kong residents that arise in Luxembourg,
which are currently subject to income tax there, will also enjoy
exemption under the agreement.
"Both Hong Kong and Luxembourg
are among the freest economies in the world, and both places have
succeeded in surpassing our relatively small geographical size to
become one of the most vibrant global economies." Professor
Chan said at the signing ceremony.
"It is therefore no coincidence
that we find ourselves natural partners in a taxation agreement,"
Professor Chan said.
The agreement will come into force
as from April 1, 2008, for Hong Kong and January 1, 2008, for Luxembourg,
subject to the completion of ratification procedures on both sides.
In the case of Hong Kong, an order is required to be made by the
Chief Executive in Council under the Inland Revenue Ordinance. The
order is subject to negative vetting by the Legislative Council.
Hong Kong is actively seeking to
establish a network of comprehensive double taxation agreements
with major trading and investment partners, and has concluded CDTAs
with Belgium in 2003, with Thailand in 2005 and with the Mainland
of China in 2006.
Where CDTA discussions with some
jurisdictions cannot be started for the time being, Hong Kong will
seek to conclude limited double taxation avoidance arrangements
for airline and shipping income with relevant partners. So far,
23 double taxation avoidance arrangements on airline income, six
agreements on shipping income and two agreements on both airline
and shipping income have been made.
Details of the Hong Kong/Luxembourg
CDTA can be found on the Inland Revenue Department website at http://www.ird.gov.hk/eng/pdf/luxembourg.pdf.
Ends/Friday, November 2, 2007
Issued at HKT 18:49
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