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Hong Kong; Japan

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Treaty between Hong Kong and Japan – details

Details of the income tax treaty and protocol between Hong Kong and Japan, signed on 9 November 2010, have become available. The treaty was concluded in Chinese, Japanese and English languages, each text having equal authenticity. In the case of divergence, however, the English text prevails. The treaty generally follows the OECD Model Convention.

The maximum rates of withholding tax are:

-   10% on dividends generally, but 5% if the beneficial owner is a company owning directly or indirectly at least 10% of the voting power of the company paying the dividends for a period of 6 months ending on the date on which entitlement to the dividends is determined;
-   10% on interest; and
-   5% on royalties.

Deviations from the OECD Model include the following:

-   a general 7-year limit on transfer pricing adjustments under the treaty, except in cases of fraud or wilful default (Art. 9(3));
-   capital gains derived by a resident of a contracting state from the alienation of shares in a financial institution established in the other contracting state which has received substantial financial support from that other state are taxable in that other state if the shares are alienated within 5 years after the first date on which the financial support was provided (Art. 13(3)). This provision does not apply with respect to shares acquired prior to the entry into force of the 2010 tax treaty.

Hong Kong and Japan generally apply the credit method to avoid double taxation.

Neither contracting party can terminate this treaty during a period of 5 years starting from the date of its entry into force (Art. 30).

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