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Luxembourg-Hong Kong

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Treaty between Luxembourg and Hong Kong signed and details

Luxembourg and the Hong Kong Special Administrative Region of China (People's Rep.) signed a first-time income and capital tax treaty and protocol on 2 November 2007. Once in force, the Luxembourg-Hong Kong treaty will generally apply from 1 January 2008 in Luxembourg and generally from 1 April 2008 in Hong Kong (Art. 28(2) of the Treaty). The treaty was concluded in the English and French languages, both texts having equal authenticity, and broadly follows the OECD Model Convention, but with some provisions based on the UN Model Convention.

The maximum rates of withholding tax are:

-   10% on dividends in general and 0% if the beneficial owner is a company which holds directly at least 10% of the capital or a participation with an acquisition cost of at least EUR 1.2 million in the company paying the dividends (Art. 10(2) of the Treaty);
-   0% on interest (Art. 11(1) of the Treaty); and
-   3% on royalties (Art. 12(2) of the Treaty).

Deviations from the OECD Model include that:

-   a permanent establishment (PE) includes (i) a building site or a construction, assembly, installation or supervisory activities in connection therewith if it exists for more than 6 months ((Art. 5(3)(a) of the Treaty), (ii) the furnishing of services, including consultancy services, by an enterprise directly or through employees or other personnel engaged by the enterprise for such purposes if the activities of that nature for the same or a connected project last for a period or periods aggregating more than 180 days within any 12 month period (Art. 5(3)(b) of the Treaty, and (iii) a person who habitually maintains a stock of goods or merchandise in one of the contracting states from which he regularly fills orders on behalf of an enterprise established in the other state (Art. 5(5)(b) of the Treaty);
-   profits attributed to a PE may be determined on the basis of an apportionment of the total profits of the enterprise or any other method prescribed by law if the result is in accordance with Art. 7 of the Treaty (Art. 7(4) of the Treaty);
-   the definition of royalties includes films or tapes used for radio or television broadcasting or payments for the use of, or the right to use industrial, commercial or scientific experience (Art. 12(3) of the Treaty);
-   the provision that capital gains derived by a resident of a contracting state from the shares of a company deriving more than 50% of its asset value directly or indirectly from immovable property situated in the other contracting state may be taxed in that other state does not apply to gains derived from the alienation of shares (i) quoted on a stock exchange agreed by the states; (ii) alienated or exchanged in the framework of a reorganization of a company, a merger, a division or a similar operation; or (iii) in a company deriving more than 50% of its assets value from immovable property in which it carries on its business (Art. 13(4) of the Treaty);
-   pensions and other similar remuneration (including a lump-sum payment) paid under (i) a public scheme which is part of the social security system of a contracting state, (ii) a recognized scheme in a contracting state in which individuals may participate to secure retirement benefits, or (iii) the social security legislation of a contracting state (Art. 17(2) of the Treaty) shall be taxable only in the source state; and
-   the contracting states preserve their right to apply their domestic laws and measures concerning tax avoidance (Art. 27 of the Treaty).         
Hong Kong provides for the credit method to avoid double taxation (Art. 22(1) of the Treaty).

Luxembourg provides for the exemption-with-progression method to avoid double taxation and the credit method with respect to dividends, royalties, and income derived by artistes and sportsmen (Art. 22(2)(a)-(c) of the Treaty).

The treaty will apply for a minimum period of 5 years (Art. 29 of the Treaty).

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