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Swiss, Hong Kong DTA In Force

by Ulrika Lomas,, Brussels

26 October 2012

The Swiss Federal Department of Finance (FDF) has recently announced that the double taxation agreement (DTA) between Switzerland and Hong Kong has now entered into force.

According to the FDF, the DTA contains an administrative assistance clause in accordance with the international standard and will serve to contribute to the further positive development of bilateral economic relations.

The agreement entered into force on October 15, 2012, and is applicable from January 1, 2013 with regard to Swiss taxes, and from April 1, 2013 concerning Hong Kong taxes.

The FDF explains that this is the first such agreement between the two parties.

Signed on December 6, 2010, the accord is the 18th comprehensive DTA concluded by Hong Kong with its trading partners. It was stated at the time 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 Swiss withholding tax at 35%. Under the agreement, the withholding tax rate will be reduced to 10%. The dividends will be exempt from withholding tax if the recipient of the dividends is a company holding directly at least 10% of the capital of the company paying the dividends. The treaty also provides exemption from Swiss interest withholding tax, currently at 35%, for Hong Kong residents.

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.

TAGS: tax | investment | business | double tax agreement (DTA) | interest | Organisation for Economic Co-operation and Development (OECD) | corporation tax | agreements | tax rates | withholding tax | Hong Kong | Switzerland | dividends | trade

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