The income and capital tax treaty between Georgia and Hong Kong will enter into force on 1 July 2021. The treaty, signed by Georgia on 25 September 2020 and by Hong Kong on 5 October 2020, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Georgian profit tax, income tax, and property tax, and covers Hong Kong profits tax, salaries tax, and property tax.

Residence

If a person, other than an individual, is considered resident in both Contracting Parties, the competent authorities will determine the person's residence for the purpose of the arrangement through mutual agreement, having regard to its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, such person shall not be entitled to any relief or exemption from tax provided by the arrangement, except to the extent and in such manner as may be agreed upon by the competent authorities of both Contracting Parties.

Withholding Tax Rates

• Dividends - 5%, with an exemption for dividends paid to the government of a Contracting Party and government-owned entities as may be agreed, including the National Bank of Georgia and the Hong Kong Monetary Authority and Exchange Fund
• Interest - 5%, with an exemption for interest paid to the government of a Contracting Party and government-owned entities as for dividends
• Royalties - 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 or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more than 50% of their value directly or indirectly from immovable property situated in the other Party, with an exemption for gains from the alienation of shares:
  • quoted on such stock exchange as may be agreed between the competent authorities of the Contracting Parties;
  • alienated or exchanged in the framework of a reorganization of a company, a merger, a scission or a similar operation; or
  • in a company deriving more than 50% of its value from immovable property in which it carries on its business.

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.

Entitlement to Benefits

Article 27 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, 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 in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies in Georgia from 1 January 2022 and applies in Hong Kong from 1 April 2022.