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Hong Kong-South Africa

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Tax Treaty between Hong Kong and South Africa has Entered into Force

The Hong Kong Inland Revenue Department has announced that the income tax treaty between Hong Kong and South Africa entered into force on 20 October 2015. The treaty, signed by South Africa on 30 September 2014 and by Hong Kong on 16 October 2014, 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 South African normal tax, withholding tax on royalties, dividend tax, withholding tax on interest and the tax on foreign entertainers and sportspersons.

Residence

If a company is considered resident of both Contracting Parties, its residence for the purposes of the tax treaty is the location of its effective management. In cases of doubt, the competent authorities of both Parties will determine the location of its effective management through mutual agreement. If no agreement is reached, the company will not be entitled to the benefits of the treaty, except those provided by Articles 21 (Methods for Elimination of Double Taxation), 22 (Non-Discrimination), and 23 (Mutual Agreement Procedures).

Service PE

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 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital, otherwise 10%
  • Interest - 10%
  • Royalties - 5%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) 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 or royalties 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 deriving more than 50% of their value directly or indirectly from immovable property situated in the other Party, with an exception for:
    • Shares quoted on a stock exchange of either Contracting Party or other exchange as may be agreed to by both Parties, or
    • Shares in a company that carries on its business in the immovable property from which the more than 50% value is derived

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 Parties apply the credit method for the elimination of double taxation.

Effective Date

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

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