Double Taxation Agreement Hong Kong and Italy
In August the Double Taxation Agreement (‘DTA’) between Hong Kong and Italy, which was signed in early 2013, has entered into force. The provisions of the DTA are effective from the 2016-2017 year of assessment.
The broad aim of the DTA is to avoid double taxation between the two jurisdictions and to prevent tax evasion while encouraging economic and business exchanges between the trade partners.
The Agreement describes the taxing rights between to the two countries. It includes provisions granting tax relief on passive income, to enable investors in both jurisdictions to make a more accurate assessment of their potential tax liabilities arising from cross-border investment activity. It is hoped that the clarity afforded to investors will increase the existing trading and economic links between Hong Kong and Italy and will act as a spur to encourage reciprocal business and further investment.
The principal provisions of the DTA can be summarized as follows:
Tax paid in Hong Kong will be treated as a tax credit for Italian tax purposes.
Tax paid in Italy by companies will be treated as a tax credit in Hong Kong in respect of income, subject to Hong Kong tax law.
Residents of Hong Kong will continue to be subject to Italian withholding tax on interest received from Italy, however, it is now capped at a reduced rate of 12.5% (previously 20%).
Italian withholding tax on dividends payable to Hong Kong residents will be capped at 10% (previously 20%) and Italian royalties’ withholding tax is now capped at 15% (previously 22.5%).
Profits earned by Hong Kong residents from international shipping that arise in Italy will no longer be taxed in Italy.
The DTA also includes provisions on the exchange of information between the two jurisdictions in accordance with current OECD international standards.
Professor KC Chan, the Hong Kong Secretary for Financial Services and Treasury, is reported as saying
"Hong Kong has all along been committed to expanding its network of comprehensive agreements for the avoidance of double taxation (CDTAs) with trading and investment partners, and has signed thirty two CDTAs so far, including this one with Italy.
"The CDTA between Hong Kong and Italy will bolster the economic and trade connections between the two places, and offer added incentives for companies in Italy to do business or invest in Hong Kong, and vice versa."
Professor Chan concluded by stating, "We believe the entry into force of the CDTA between Hong Kong and Italy would help address any concerns on the part of the Italian authorities about Hong Kong's commitment to enhancing tax transparency and combating cross-border tax evasion, thus facilitating the removal of Hong Kong from the 'blacklist' of Italy as early as possible."