Hong Kong, Russia DTA Enters Into Force

The comprehensive double taxation agreement (CDTA) between Hong Kong and Russia, which was signed in January this year, entered into force on July 29, 2016, and will be in effect in Hong Kong for any year of assessment beginning on or after April 1, 2017.

The CDTA is said to support the territory’s ongoing efforts to expand its tax treaty network with jurisdictions along “the Belt and Road,” which is a Chinese Government economic development project aimed at integrating trade and investment among around 60 Eurasian countries.

In the absence of the CDTA, the profits of Hong Kong companies doing business through a permanent establishment in Russia were taxable in both places if the income was sourced in Hong Kong. Under the agreement, double taxation is avoided as any Russian tax paid by the companies on their income is allowed as a credit against tax payable in Hong Kong.

In addition, under the agreement, Russia’s withholding tax rate on royalties, currently at 20 percent (for companies) or 30 percent (for individuals), is capped at three percent. Russia’s dividend withholding tax rate on Hong Kong residents is reduced from the current rate of 15 percent to five percent or 10 percent, depending on the recipient’s shareholding in the payee.

Under further provisions, Hong Kong airlines operating flights to Russia are taxed at Hong Kong’s corporation tax rate, and are not taxed in Russia. Profits from international shipping transport earned by Hong Kong residents that arise in Russia are also not now taxed in Russia.

The CDTA includes a provision for the exchange of tax information between the two jurisdictions in line with international standards.