On 24 May 2018, officials from Finland and Hong Kong signed an income tax treaty. The treaty is the first of its kind between the two jurisdictions.
The treaty covers Finnish state income taxes, corporate income tax, communal tax, church tax, tax withheld from interest, and tax withheld at source from non-residents' income. It covers Hong Kong profits tax, salaries tax, and property tax.
If a company is considered resident in both Contracting Parties, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to claim any benefits under the treaty, except the benefits of Articles 22 (Elimination of Double Taxation) and 23 (Non-Discrimination).
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting Party through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 270 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.
Article 21 (Entitlement to Benefits) includes the provision that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in the benefit, unless it is established that granting the benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.
Both countries generally apply the credit method for the elimination of double taxation. However, Finland will exempt dividends received by a Finnish company that directly controls at least 10% of the voting power in the paying company.
The treaty will enter into force 30 days after the ratification instruments are exchanged and will apply in Finland 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. Once the treaty is in force and effective, the 2007 Air Services Agreement between Finland and Hong Kong will be terminated.
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