On 26 June 2019, officials from Cambodia and Hong Kong signed an income tax treaty. The treaty is the first of its kind between the two jurisdictions.
The treaty covers Cambodian tax on income including withholding tax, minimum tax, additional profit tax on dividend distribution, and capital gains tax, and tax on salary. It covers Hong Kong profits tax, salaries tax, and property tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting Party for a period or periods aggregating more than 183 days within any 12-month period.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise carries on activities (including the operation of substantial equipment) in a Contracting Party for the exploration or exploitation of natural resources for a period or periods aggregating more than 90 days within any 12-month period.
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Both countries apply the credit method for the elimination of double taxation. A provision is also included for a tax sparing credit for tax that would have been payable but has been exempted or reduced in accordance with relevant incentives designed to promote economic development in the laws or connected regulations of either Contracting Party. The sparing credit provision will apply for 10 years from the treaty's entry into force but may be extended.
The treaty does not include a specific LOB or PPT provision, although the final protocol signed with the treaty does include the provision that nothing in the treaty shall prejudice the right of each Contracting Party to apply its laws and measures concerning tax avoidance, whether or not described as such.
The treaty will enter into force once the ratification instruments are exchanged and will apply in Cambodia 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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