On April 13, 2016 the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the Government of the Republic of Latvia signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Hereafter: the DTA).
Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“Taxes Covered”), the existing taxes to which the DTA shall apply are in particular:
a) In the case of the Hong Kong Special Administrative Region:
(i) profits tax;
(ii) salaries tax; and
(iii) property tax;
whether or not charged under personal assessment
b) In the case of Latvia:
(i) the enterprise income tax; and
(ii) the personal income tax.
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the DTA in addition to, or in place of, the existing taxes, as well as any other taxes falling within paragraphs 1 and 2 of Article 2 of the DTA which a Contracting Party might impose in future.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“Permanent Establishment”) arranges that the term “permanent establishment” also encompasses:
(a) a building site, construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than nine months;
(b) the furnishing of services, including consultancy services, by an enterprise of a Contracting Party directly or through employees or other personnel engaged by the enterprise for such purpose, but only where such activities continue (for the same or a connected project) in the other Contracting Party for a period or periods exceeding in the aggregate six months within any twelve month period.
Immovable property
Article 6, Paragraph 1 of the DTA (“Income from Immovable Property”) arranges that income derived by a resident of a Contracting Party from immovable property (including income from agriculture or forestry) situated in the other Contracting Party may be taxed in that other Party.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“Capital Gains”) arranges that gains derived by a resident of a Contracting Party from the alienation of immovable property referred to in Article 6 and situated in the other Contracting Party may be taxed in that other Party.
Article 13, Paragraph 4 of the DTA arranges that gains derived by a resident of a Contracting Party from the alienation of shares or of a comparable interest of any kind deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting Party may be taxed in that other Party. However, Paragraph 4 of Article 13 of the DTA does not apply to gains derived from the alienation of shares:
(a) quoted on such stock exchange as may be agreed between the Parties; or
(b) alienated or exchanged in the framework of a reorganization of a company, a merger, a division or a similar operation.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting Party, Article 10, Paragraph 2 of the DTA (“Dividends”) maximizes the withholding tax a Source State is allowed to withhold over such dividends to:
(a) 0 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership);
(b) 10 percent of the gross amount of the dividends in all other cases.
Interest
If the beneficial owner of the interest is a resident of the other Contracting Party, Article 11, Paragraph 2 of the DTA (“Interest”) maximizes the withholding tax a Source State is allowed to withhold over such interest to:
(a) 0 per cent of the gross amount of the interest, if the interest is paid by a company that is a resident of a Contracting Party to a company (other than a partnership) that is a resident of the other Contracting Party and is the beneficial owner of the interest;
(b) 10 percent of the gross amount of the interest in all other cases.
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting Party, Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax a Source State is allowed to withhold over such royalties to:
(a) 0 per cent of the gross amount of the royalties for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience if the royalties are paid by a company that is a resident of a Contracting Party to a company (other than a partnership) that is a resident of the other Contracting Party and is the beneficial owner of the royalties;
(b) 3 percent of the gross amount of the royalties in all other cases.
Other
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 23) and regarding the Exchange of Information (Article 24).
Click here to be forwarded to the text of the DTA as available on the website of the Hong Kong Inland Revenue Department.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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