On August 24, 2017 the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the Government of the Kingdom of Saudi Arabia signed an Agreement for the Avoidance of Double Taxation and the Prevention of Tax 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.
Based on Article 2, Paragraph 3 of the DTA (“Taxes Covered”), The existing taxes to which this Agreement shall apply are:
(a) in the case of the Hong Kong Special Administrative Region:
(i) profits tax;
(ii) salaries tax;
(iii) property tax; whether or not charged under personal assessment
(b) in the case of the Kingdom of Saudi Arabia:
(i) the Zakat;
(ii) the income tax including the natural gas investment tax.
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of this Agreement in addition to, or in place of, the existing taxes, as well as any other taxes falling within paragraphs 1 and 2 of this Article which a Contracting Party may impose in future.
Article 4, Paragraph 3 of the DTA (“Resident”) arranges that Where by reason of the provisions of paragraph 1 of this Article, a person other than an individual is a resident of both Contracting Parties, then it shall be deemed to be a resident only of the Contracting Party in which its place of effective management is situated.
Article 5, Paragraph 3 of the DTA (“Permanent Establishment”) arranges that the term “permanent establishment” also includes:
(a) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only where such site, project or activities last more than six months;
(b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within a Contracting Party for a period or periods aggregating more than 183 days within any twelve-month period.
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 Contracting 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 of this Agreement and situated in the other Contracting Party may be taxed in that other Contracting Party.
Article 13, Paragraph 4 of the DTA subsequently arranges that Gains derived by a resident of a Contracting Party from the alienation of shares of a company deriving more than 50 per cent of its asset value directly or indirectly from immovable property situated in the other Contracting Party may be taxed in that other Contracting Party.
Article 9, Paragraph 2 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA (“Dividends”) maximizes the withholding tax a Source State is allowed to withhold over dividends to 5 per cent of the gross amount of the dividends.
Article 11, Paragraph 1 of the DTA (“Income from Debt-Claims”) arranges that Income from debt-claims arising in a Contracting Party and paid to a resident of the other Contracting Party shall be taxable only in that other Contracting Party.
Article 11, Paragraph 2 subsequently defines income from debt-claims as income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. According to Article 11, Paragraph 2, penalty charges for late payment shall however not be regarded as income from debt-claims for the purpose of this Article.
If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax a Source State is allowed to withhold over the royalties to:
(a) 5 per cent of the gross amount of the royalties which are paid for the use of, or the right to use, industrial, commercial, or scientific equipment;
(b) 8 per cent of the gross amount of the royalties in all other cases.
Article 13, Paragraph 5 arranges that gains from the alienation of shares, other than those mentioned in Article 13, Paragraph 5, of a company which is a resident of a Contracting Party derived by a resident of the other Contracting Party who owns 10 per cent or more of shares of that company may be taxed in the first-mentioned Contracting Party.
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 24) and regarding the Exchange of Information (Article 25).
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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