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Hong Kong, Switzerland Sign DTA

by Mary Swire,, Hong Kong

08 December 2010

On December 6, Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, and the Swiss Consul-General, Rita Hammerli-Weschke, signed a double taxation agreement (DTA) between their two countries in Hong Kong.

This DTA is the 18th comprehensive DTA concluded by Hong Kong with its trading partners. It was stated that the DTA clearly sets out the allocation of taxing rights between the two jurisdictions and the relief on tax rates on different types of passive income.

It is hoped that it will help investors better assess their potential tax liabilities from cross-border economic activities, foster closer economic and trade links between the two places, and provide added incentives for companies in Switzerland to do business or invest in Hong Kong, and vice versa.

In the absence of the DTA, profits earned by Swiss residents in Hong Kong are currently subject to both Hong Kong and Swiss income tax. Profits of Swiss companies doing business through a branch in Hong Kong are fully taxed in both places. Under the agreement, Switzerland will provide exemption to her residents for such income.

In addition, in the absence of the DTA, Hong Kong residents receiving dividends from Switzerland, not attributable to a permanent establishment in Switzerland, are subject to a Swiss withholding tax, which is currently at 35%. Under the agreement, such withholding tax rate will be reduced to 10%. The dividends withholding tax will be exempted if the beneficial owner of the dividends is a company holding directly at least 10% of the capital of the company paying the dividends. The Swiss interest withholding tax, currently at 35%, on Hong Kong residents will be exempted.

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

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

The DTA will come into force after the completion of ratification procedures on both sides. In the case of Hong Kong, an order is required to be made by the Chief Executive in Council under the Inland Revenue Ordinance. The order is subject to negative vetting by the Legislative Council.

It was confirmed that the DTA’s provisions on the exchange of tax information are in accordance with the parameters decided by the Swiss Federal Council. After negotiations finished, a report on the DTA with Hong Kong was submitted to the Swiss cantons and business associations and they largely approved the signing of the agreement. Under the standard procedure, the Federal Council will now submit the signed DTA together with a dispatch to parliament.

A comprehensive report in our Intelligence Report series, examining in depth the situation of offshore transparency and secrecy in a number of the most prominent jurisdictions, is available in the Lowtax Library at and a description of the report can be seen at
TAGS: tax | double tax agreement (DTA) | interest | law | corporation tax | agreements | legislation | tax rates | withholding tax | Hong Kong | Switzerland | dividends

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