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Hong Kong-Italy

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Tax Treaty between Hong Kong and Italy has Entered into Force

The income tax treaty between Hong Kong and Italy entered into force on 10 August 2015. The treaty, signed 14 January 2013, is the first of its kind between the two jurisdictions.

Taxes Covered

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).

Residence

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 based on its place of effective management. If the authorities cannot reach mutual agreement, the company will not be entitled to claim any relief or exemption from tax provided for by the treaty.

Construction / Service PE

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 any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 12.5%
  • Royalties - 15%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
  • Gains from the alienation of shares of a company deriving 50% or more of its asset value directly or indirectly from immovable property situated in the other Party, unless such shares are quoted on a stock exchange of either Contracting Party or other exchange as may be agreed to by both Contracting Parties

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Double Taxation Relief

Both jurisdictions generally apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2016 in Italy and from 1 April 2016 in Hong Kong.

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