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Hong Kong-Pakistan

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Tax Treaty between Hong Kong and Pakistan Signed

On 17 February 2017, officials from Hong Kong and Pakistan signed an income tax treaty. The treaty 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 Pakistan income tax and super tax.

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 - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical services (managerial, technical, or consultancy) - 12.5%

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.

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 apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 28 (Miscellaneous Rules) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply in Hong Kong from 1 April of the year following its entry into force and in Pakistan from 1 July next following its entry into force.

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