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Hong Kong signs comprehensive agreement with Luxembourg on avoidance of double taxation (with photo)


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 Krecké, 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

Ends/Friday, November 2, 2007
Issued at HKT 18:49

Hong Kong signs comprehensive agreement with Luxembourg on avoidance of double taxation