On 18 January 2016 Hong Kong signed a double taxation agreement
(DTA) with Russia. This agreement comes shortly after Hong Kong
concluded a DTA with Romania in November 2015, which is also on the
'Belt and Road' route, and brings the number of DTAs in
Hong Kong to 34.
Professor Chan, Secretary for Financial Services and the
Treasury within the Hong Kong government, said, 'The agreement
will bolster the economic and trade connections between the two
places. It will also offer added incentives for companies in Russia
to do business or invest in Hong Kong, and vice versa.'
The DTA will come into force following ratification procedures
on both sides. If these can be concluded in 2016, the DTA will be
effective from 1 April 2017 in Hong Kong and 1 January 2017 in
Withholding tax relief and exchange of information
Since Hong Kong does not charge withholding tax on dividends and
interest, the focus of the DTA's withholding tax provisions is
to reduce withholding tax on dividends and interest received by a
Hong Kong resident from a Russian entity.
The DTA reduces withholding tax on dividends from 15% to 10% in
most cases. This is reduced to 5% if the beneficial owner of the
dividend is a parent company with at least 15% of the capital of
the distributing company. A 0% rate applies to dividends paid to
the Hong Kong Monetary Authority, the Exchange Fund or any entity
owned by the Hong Kong government. Withholding tax on interest is
reduced from 20% to 0%, and withholding tax on royalties is reduced
from 20% to 3%.
Generally, no withholding tax will be charged on capital gains
from the sale of a Russian company by a Hong Kong company provided
the company derives less than half of its asset value from Russian
immovable property (such as real estate, agriculture and
The DTA also includes a provision for the exchange of tax
information between the two jurisdictions plus any specific
Tax benefits relating to business profits
The main provision relating to business profits affects Hong
Kong resident entities generating profits in Russia. Under the DTA,
a Hong Kong resident entity will not be subject to tax on profits
in Russia unless it is operating through a permanent establishment
(PE). If it is operating through a PE, only profits attributed to
the PE will be taxable in Russia.
A PE in Russia
includes a building site or certain similar physical projects
operating for longer than 12 months and the furnishing of services
through staff in Russia for longer than 183 days in any 12-month
Reduction of witholding tax on dividend, interest and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On September 30, 2016, the VAT authorities confirmed that VAT shall apply to directors' fees.
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