Hong Kong And Netherlands Sign DTA

by Mary Swire, Tax-News.com, Hong Kong

24 March 2010

Hong Kong’s Secretary for Financial Services and the Treasury, Prof. K C Chan, and the Minister of Finance of the Netherlands, J C de Jager, have signed in Hong Kong a comprehensive double taxation agreement (DTA) between Hong Kong and the Netherlands.

It was announced that, under the DTA, withholding tax rates on passive income, including dividends and royalties, will be lowered. A zero withholding tax rate, instead of the 15% rate currently applicable in the Netherlands, will apply to dividends received by qualifying persons holding at least 10% of the share capital of the paying companies, as well as dividends received by banks and insurance companies, pension funds, headquarters of companies and certain other qualifying entities.

To other dividends, a withholding tax rate of 10% will apply. No source taxation will apply to interest payments, as there is no withholding tax for such payments within either party. For royalties, Hong Kong has agreed to limit its withholding tax to 3%.

The DTA also contains a provision on the exchange of information relating to tax matters, according to the internationally-agreed standard. It offers an opportunity for the tax authorities of Hong Kong and the Netherlands to consult each other in order to resolve disputes on the application or interpretation of the DTA, and taxpayers have recourse to an arbitration procedure.

Both J C De Jager and K C Chan underlined that the signing of the DTA will contribute to the expansion of mutual investments and the strengthening of the economic relations between the Netherlands and Hong Kong.

J C De Jager said: "I am very happy that we have signed this agreement today. It is a milestone in the bilateral relations between Hong Kong and the Netherlands and a stepping stone towards further increasing mutual investments."

KC Chan replied that: "I am confident that the agreement will encourage greater flow of investment, technology, talent and expertise between us for the mutual benefit of both economies. The Hong Kong-Netherlands CDTA is the first agreement we conclude with an Organisation for Economic Co-operation and Development (OECD) member country adopting the latest international standard on exchange of information.”

“The Netherlands is a significant investor in Hong Kong, ranking third in the league of source countries of external investment in Hong Kong,” he added. “There are now over 170 Dutch companies in Hong Kong, spreading across different sectors of our economy.”

The DTA will require ratification in the Netherlands and Hong Kong before it can enter into force.

With regard to other planned comprehensive DTA, K C Chan disclosed that Hong Kong is “in a process of talking to a great number of jurisdictions. I think the number is some 15 or more.”

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