Tiesema, Jan: Hong Kong And The Netherlands Sign Agreement For Avoidance Of Double Taxation

On 22 March 2010, the Secretary for Financial Services and the Treasury of Hong Kong and the Dutch Minister of Finance, signed a comprehensive agreement for the avoidance of double taxation (DTA) between the Hong Kong Special Administrative Region and the Kingdom of the Netherlands.The DTA applies to taxes on income and intends to avoid double taxation as well as to prevent tax evasion. Under the DTA, withholding tax rates on passive income, including dividends and royalties, will be lowered.A withholding tax rate of 0%, instead of the 15% rate currently applicable in the Netherlands in absence of a DTA, applies to dividends received by qualifying persons holding at least 10% of the share capital of the paying company, as well as dividends received by, amongst others, pension funds, headquarters, and certain other qualifying entities. To other dividends, a WHT tax of 10% will apply. No source taxation will apply to interest payments, as there is no WHT for such payments in either country. For royalties Hong Kong has agreed to limit its WHT to 3%.The DTA also contains a provision in accordance to the OECD standard on exchange of information relating to tax matters. 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. Furthermore, under the DTA, taxpayers could request an arbitration procedure.Although the Netherlands are not the first EU country to sign a DTA with Hong Kong, the DTA is among the first agreements that are signed by Hong Kong based on the 2004 OECD model, with certain modifications to provide additional safeguards against abuse of the article offering 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. Furthermore, under the DTA, taxpayers could request an arbitration procedure.Belgium prides itself on having the first ever comprehensive double tax treaty with Hong Kong (2003). Contrary to the treaty with the Netherlands, this treaty provides an exemption of WHT on dividends if the beneficial owner is a company resident in the other state holding a participation of 25% for at least 12 months. The treaty with Luxembourg (2008) has a similar provision as the treaty with the Netherlands as described above.There is no withholding tax on interest or royalties in Luxembourg and the Netherlands. In Belgium, the rate is 5%.The Hong Kong – Netherlands DTA still needs to be ratified in Hong Kong and the Netherlands before it can enter into force. The planned effective date for the agreement is for Hong Kong the year of assessment 2011/2012 and subsequent years, and for The Netherlands any taxable year and period beginning on 1 January 2011.