Hong Kong: New income tax treaty with Russia

Hong Kong: New income tax treaty with Russia

Representatives of the governments of Hong Kong and Russia in January 2016 signed a new income tax treaty that allocates taxing rights between the two jurisdictions, provides for reduced withholding tax rates, and is intended to provide investors greater certainty on their potential tax liabilities arising from cross-border activities.

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The Hong Kong-Russia income tax treaty will enter into force after the completion of the ratification procedures in both jurisdictions. If the ratification process is completed in 2016, the income tax treaty will be effective 1 April 2017 in Hong Kong, and 1 January 2017 in Russia. 

Among the provisions in the tax treaty are the following:

  • Hong Kong airlines operating flights to Russia will be taxed at Hong Kong's profits tax rate and will not be subject to taxation in Russia. 
  • Profits from international shipping transport earned by Hong Kong residents that arise in Russia (and currently are subject to tax in Russia) will not be subject to taxation in Russia. 
  • The new treaty includes an exchange of information article based on the current OECD model treaty standard and a domestic anti-abuse measure. 

Withholding tax rates

The new income tax treaty includes the following withholding tax rates for passive income:

  • Dividends—the Russian dividend withholding tax rate on Hong Kong residents will be reduced from 15% to either 5% or 10% (the 5% rate being applicable when the beneficial owner of the dividends is a company that has a direct holding of at least 15% of the capital of the dividend-payer). 
  • Interest—the Russian withholding tax rate on interest (currently 20%) will be reduced to 0%. 
  • Royalties—the Russian withholding tax rate on royalties for companies will be reduced from 20% to 3%.

 

Read a January 2016 report [PDF 167 KB] prepared by the KPMG member firm in Hong Kong:  Hong Kong and Russia conclude Double Tax Agreement 

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