On 4 March 2015, Italy's Chamber of Deputies approved a law for the ratification of the pending income tax treaty with Hong Kong. The treaty, signed 14 January 2013, is the first of its kind between the two jurisdictions.
The treaty covers Hong Kong profits tax, salaries tax and property tax. It covers Italy's personal income tax, corporate income tax and the regional tax on productive activities (IRAP).
If a company is a resident of both Contracting Parties, its residence for the purposes of the tax treaty will be decided by the competent authorities of both Parties through mutual agreement based on its place of effective management. If no agreement is reached, the company will not be entitled to the benefits of the treaty.
The treaty includes the provision that a permanent establishment will be deemed constituted if a building site, a construction, assembly or installation project or supervisory activities last more than six months in a Contracting Party. In addition, a permanent establishment will be deemed constituted if an enterprise furnishes services through employees or other engaged personnel in connection with a site, a project or supervisory activities if such services continue for a period or periods aggregating more than 6 months within a 12 month period.
Both jurisdictions generally apply the credit method for the elimination of double taxation.
The treaty will enter into force once the ratification instruments are exchanged, and will apply in Italy from 1 January of the year following its entry into force and in Hong Kong from 1 April of the year following its entry into force.
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