/24-7PressRelease/ - Hong Kong, September 13, 2008 - The agreement applies only to residents of Hong Kong or Luxembourg.
Under the laws of Luxembourg a tax resident is a person or entity subject to tax by reason of his domicile, residence, place of management or other criterion of a similar nature. This does not include a person or entity merely subject to tax in Luxembourg or income sourced on capital situated in Luxembourg.
In contrast any company which is incorporated or constituted under the laws of Hong Kong as well as if not incorporated or constituted under the laws there is nonetheless managed or normally controlled there it will be classed as a resident.
The particulars of the treaty are:
Witholding tax on dividends
If the beneficial owner is a company that holds at least 10% in the capital of the distributing company or the participation has acquisition costs of 1,200,000 Euros or over there is no withholding tax on dividends.
There is however a 10% tax of the gross amount of dividends in other cases. in Luxembourg as Hong Kong does not impose withholding tax on dividends.
There is 0% on interest (interest only being taxable in the state of the beneficial owner).
Withholding tax on royalties
Under the Treaty, there is a 3% royalties withholding tax, but Luxembourg does not impose withholding tax on royalties paid to non-residents anyway so the treaty rate of 3% will only benefit Luxembourg companies receiving royalties from Hong Kong.
Taxation of Capital Gains
Under the treaty CGT may only be charged in a state where a person disposing of assets is resident unless the asset qualifies as:
* Immovable property that is situated in the other state
* Movable property allocated to permanent establishments in the other state
* Shares of a company of which more than 50 % of the value is derived directly or indirectly from immovable property situated in the other state (subject to exceptions).
However as Hong Kong does not have a capital gains tax, the benefits offered under the new treaty only benefit Hong Kong companies with investments in Luxembourg. Under the treaty, Hong Kong companies are exempt from tax on any capital gains derived from the disposal of shares in a Luxembourg company, provided that not more than 50% of the asset value of the Luxembourg company is comprised of immovable property situated in Luxembourg.
Income from employment
Taxed exclusively in the state of where the contracting party is resident unless employment is exercised in the other state. In this case the income from that party may be subject to the 183 day rule.
Capital
Capital represented by property (both movable and immovable) forming part of a business of a permanent establishment is taxed in the jurisdiction of the party of where the capital is situated. Other capital is normally taxed on the owner's residency.
The Treaty also contains a clause that provides for a mutual agreement procedure and provisions for the exchange of information between the two parties however the release of information from Hong Kong by Luxembourg to a third party is not allowed unless consent from the Hong Kong competent authorities is received. Also, the exchange of information between tax authorities is restricted to residents in Luxembourg and Hong Kong.
For further information, please contact Zetland at intray@zetland.biz
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