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Hong Kong-Korea, Rep of

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

According to an update on the Hong Kong Department of Justice site, the income tax treaty with South Korea entered into force on 27 September 2016. The treaty, signed 8 July 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 Korean income tax, corporation tax, the special tax for rural development, and local income tax.

Residence

If a company is considered resident in both Contracting Parties, it will be deemed to be a resident only of the Party in which its place of effective management is situated. In cases of doubt, 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 provided by the treaty, except for those provided by Articles 21 (Methods for Elimination of Double Taxation), 22 (Non-Discrimination), and 23 (Mutual Agreement Procedures).

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 25% of the paying company's capital, otherwise 15%
  • Interest - 10%
  • Royalties - 10%

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 more than 50% of its asset value directly or indirectly from immovable property situated in the other Party

Double Taxation Relief

Both jurisdictions apply the credit method for the elimination of double taxation. In respect of dividends received by a Korean resident company that owns at least 10% of the voting shares issued by or the capital stock of the paying company, Korea will also provide a credit for the tax payable on the profits out of which the dividends are paid.

Limitation on Benefits

Article 26 (Limitation on Benefits) includes the provision that in respect of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), and 20 (Other Income), a resident of a Contracting Party will not be entitled to benefits of treaty if the main purpose or one of the main purposes of any person concerned with the creation or assignment of any share, debt-claim, property or right in respect of which the income is paid is to take advantage of these Articles by means of that creation or assignment.

Effective Date

In Hong Kong, the treaty applies from 1 April 2017. In South Korea, the treaty applies from 1 April 2017 for withholding taxes and from 1 January 2017 for other taxes.

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