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Hong Kong-India

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Tax Treaty between Hong Kong and India Signed

On 19 March 2018, officials from Hong Kong and India 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, and cover Indian income tax, including any surcharge.

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. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting Parties.

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%
  • Interest – 10%
  • Royalties – 10%
  • Fees for technical services (managerial, technical, or consultancy) – 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;
  • 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; and
  • Gains from the alienation of shares in a company that is resident in the other Party.

Unlike most treaties, the Hong Kong-India treaty provides that gains from the alienation of any other property may be taxed in each Contracting Party in accordance with the provisions of its domestic law.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Fees for Technical Services), and 14 (Capital Gains) will not apply if 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 income is paid; the performance of services in respect of which the technical fees are paid; or the alienation of property in respect of which the capital gains are derived was to take advantage of those Articles by means of that creation or assignment, performance, or alienation. The limitation is included in each of those Articles.

Further, Article 28 (Miscellaneous Rules) includes that:

  • The provisions of the treaty shall in no case prevent a Contracting Party from the application of the provisions of its domestic law and measures concerning tax avoidance or evasion, whether or not described as such; and
  • A Contracting Party is not required to grant benefits under the treaty if the main purpose or one of the main purposes of any persons concerned is for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the treaty for the indirect benefit of residents of third jurisdictions).

Cases of legal entities not having bona fide business activities shall also be covered by the provisions of Article 28.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 April next following its entry into force.

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