Hong Kong and France enter into a double taxation treaty
After nearly 10 years of lobbying and negotiations Hong Kong and France entered into a double taxation treaty (DTT) on October 21, 2010. This DTT aims at preventing double taxation as well as its repercussions, namely tax evasion on income taxes and capital. It is worth reminding that under articles 106-108 of the Basic Law, Hong Kong is granted by China the right to maintain an independent taxation system free of interference from the mainland until 2047 (As a matter of fact, Hong Kong can not take advantage of any DTT which China may enter into because only mainland taxes are mentioned in these treaties).
As regards the scope of this DTT, it applies to different taxes for the two territories. For France, the agreement refers to income tax, corporate tax, contribution of corporate tax, tax on salary, social security tax and wealth tax. For Hong Kong, the agreement only addresses profits tax, salary tax and property tax.
The DTT states that residents or holders of permanent establishments (i.e. corporations which have been carrying on business in the relevant territory for longer than six months) may obtain tax credit from the other territory to prevent double taxation.
As regards the content of the DTT, the treaty on its French side reduces withholding tax paid by Hong Kong residents receiving dividends from France not attributable to a permanent establishment in France from 25% to 10%. Also, Hong Kong residents receiving royalties from France will see withholding tax reduced from 33,33% in France to a maximum of 10%. The French interest withholding tax on Hong Kong residents will be reduced from 18% to 10%.
This DTT will be implemented on a different timeline: France will adopt the treaty in the next calendar year, whereas Hong Kong will do so on or after April 1, 2011.
