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(Source : Government Information Centre)

Government signs Comprehensive Agreement for Avoidance of Double Taxation with Belgium


The Government today (December 10) signed an Agreement with Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital.

This is the first comprehensive agreement for the avoidance of double taxation (CDTA) concluded by the Hong Kong Special Administrative Region Government with another economy.

Representing an important milestone in Hong Kong's efforts in the area of CDTA, the Agreement will bring about tax savings to Hong Kong and Belgian investors doing businesses in each other's area in respect of certain income, and provide a further level of certainty in tax liabilities. It will thus help to promote investment and trade between the two places. Besides, establishing a network of CDTAs will put Hong Kong on a par with other places in the region and hence further enhance our competitiveness in attracting foreign investment.

The Secretary for Financial Services and the Treasury, Mr Frederick Ma, signed the Agreement on behalf of the HKSAR Government. The Belgian Government was represented by its Minister of Finance, Mr Didier Reynders.

Speaking at the signing ceremony, Mr Ma noted that the Agreement was a very important one. "The Agreement ensures that investors will not have to pay tax twice on a single source of income. In simple terms, the Agreement will translate into tax savings to Belgian and Hong Kong investors doing businesses in each other's area, through the allocation of taxing rights between the two places and the provision of tax relief in case of double taxation," Mr Ma said.

In the absence of a CDTA, profits earned by Belgian residents in Hong Kong are subject to both Hong Kong and Belgian income taxes. Profits derived by Belgian companies from Hong Kong by doing business here through a permanent establishment (such as a branch) are subject to both Hong Kong profits tax and Belgian income tax. Belgian tax authorities provide a relief of 50% reduction in Belgian income tax for such income derived by Belgian individuals on a unilateral basis. Under the Agreement, Belgium will eliminate double taxation by providing full exemption to Belgian residents (companies and individuals alike) for such income.

Also, in the absence of a CDTA, royalties received by a Hong Kong resident from a Belgian source not attributable to a permanent establishment in Belgium is currently subject to a Belgian withholding tax at 15% on the gross amount of royalties less a 15% fixed deduction. Under the Agreement, the Belgian withholding tax will be reduced to 5% of the gross amount of royalties (without the 15% fixed deduction).

In the case of interest received by a Hong Kong resident that arises in Belgium, which is not attributable to a permanent establishment in Belgium, the Belgian withholding tax will be reduced from the current 15% of the gross amount of interest to 10% under the Agreement.

Profits from international shipping transport earned by Hong Kong residents that arise in Belgium which are currently subject to income tax in Belgium will enjoy exemption under the Agreement.

"The Agreement also formalises the tax relief being offered by the two tax authorities at present, thus providing a further level of certainty and stability to existing and potential investors alike," Mr Ma said.

As a result, it will provide added incentives for businesses in Hong Kong and Belgium to enhance their cross border investments or activities, thus fostering closer economic ties between the two places.

Mr Ma said that the Government was keen to establish a network of CDTAs with our major trading and investment partners.

"Many places in the region have already established a network of CDTAs. Having such a network in place for Hong Kong will put us on a par with other places in the region that already have one, thereby further enhancing our competitiveness in attracting foreign investment," Mr Ma explained.

The Government began to explore the possibilities of concluding CDTAs with its major trading partners in 1998. It concluded a double taxation arrangement with the Mainland in 1998. In circumstances where CDTA discussions could not immediately proceed, the Government sought to conclude limited double taxation avoidance arrangements (DTAs) for revenues arising from international shipping/air transport. A total of 18 DTAs on airline income, five agreements on shipping income and one agreement on airline and shipping income have been concluded.

Subject to the completion of ratification procedures for both sides, the Hong Kong/Belgium CDTA will take effect with respect to Hong Kong taxes from April 1, 2004, and with respect to Belgian taxes from January 1, 2004. In the case of Hong Kong, an Order to be made by the Chief Executive in Council under the Inland Revenue Ordinance, which is subject to negative vetting by the Legislative Council, will be required.

Ends/Wednesday, December 10, 2003