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Hong Kong-South Africa

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Tax Treaty between Hong Kong and South Africa Signed

The Hong Kong Inland Revenue Department has announced the signing of an income tax treaty with South Africa. The treaty was signed by South Africa on 30 September 2014, and by Hong Kong on 16 October 2014. It 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 a resident of both Contracting Parties, its residence for the purposes of the tax treaty is where its effective management is situated. In cases of doubt, the location of its effective management will be determined by the competent authorities of both Parties 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 in 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%
  • Capital Gains - gains from the alienation of property are generally exempt from withholding tax, except for gains from the alienation of immovable property, movable property forming part of the business property of a permanent establishment, and shares deriving more than 50% of their value directly or indirectly from immovable property with certain exceptions

Double Taxation relief

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

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 next following the date of its entry into force and in South Africa from 1 January of the year following its entry into force.

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