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Hong Kong, France DTA Comes Into Effect

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

05 December 2011


The double taxation agreement (DTA) between Hong Kong and France, which was originally signed by Hong Kong’s Financial Secretary, John C Tsang, and the then French Minister of Economy, Industry and Employment, Christine Lagarde, on October 21, 2010, came into effect on December 1, 2011.

Speaking at the signing ceremony, Tsang had hailed the agreement as elevating the bilateral relationship between Hong Kong and France to a new level. "I am fully confident that the agreement we have just signed will represent a win-win for all parties, as Hong Kong continues to ride on the dynamic growth in the Asian region and offer tremendous opportunities to French companies seeking to expand their presence in our region," he said.

“The French business community in Hong Kong is one of the largest in the Asia Pacific,” he added, “and French companies are doing well in all major sectors of our economy including banking, finance, transport, media, construction, catering and tourism.”

In the absence of the DTA, profits earned by French residents in Hong Kong were subject to both Hong Kong and French income tax. Profits of French companies doing business through a branch in Hong Kong were fully taxed in both places. Under the agreement, double taxation will be avoided as the income taxed in Hong Kong is allowed as a tax credit against French tax attributable to such income.

Hong Kong residents receiving dividends from France not attributable to a permanent establishment in France were subject to a French withholding tax, which is currently 25%. Under the agreement, such withholding tax rate is reduced to 10%.

Hong Kong residents receiving royalties from France were subject to a withholding tax of 33.33% in France. Under the DTA, the royalties’ withholding tax is capped at 10%. The French interest withholding tax on Hong Kong residents is reduced from the rate of 19% to 10%.

Furthermore, under the DTA, Hong Kong airlines operating flights to France are to be taxed at Hong Kong's corporation tax rate (which is lower than that of France). Profits from international shipping transport earned by Hong Kong residents that arise in France, which were subject to tax there, enjoy tax exemption under the agreement.

The Hong Kong/France DTA also incorporates the latest Organization for Economic Cooperation and Development standard on the exchange of information for tax purposes.

The agreement will have effect in Hong Kong for any year of assessment beginning on or after April 1, 2012.

A comprehensive report in our Intelligence Report series giving detailed information on offshore jurisdictions in tabular form, titled "The Lowtax Offshore Charts: Country Characteristics and Taxation; Residence Guide", is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report4.asp
TAGS: tax | double tax agreement (DTA) | royalties | law | aviation | corporation tax | offshore | agreements | withholding tax | France | Hong Kong | dividends

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