The income tax treaty between Finland and Hong Kong entered into force on 30 December 2018. The treaty, signed 24 May 2018, 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 jurisdictions 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 Hong Kong company.
The treaty applies in Finland from 1 January 2019 and in Hong Kong from 1 April 2019. Once the treaty is effective, the 2007 Air Services Agreement between Finland and Hong Kong is terminated.
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