Exemption of branch remittance tax in France under the agreement for the avoidance of double taxation between Hong Kong and France

The Agreement between Hong Kong and France for the Avoidance of Double Taxation about Taxes on Income and on Capital and the Prevention of Fiscal Evasion ("the Agreement") has been effective in Hong Kong from year of assessment 2012/13.

Under the tax law of France, income earned in France by a foreign corporation is considered as a kind of distribution to non-residents and is treated as of it were dividends. Therefore, the foreign corporation will have to pay 25% withholding tax (branch remittance tax) on its after-tax income earned in France. However, in the case that taxable income exceeds the amount of dividends or the dividends are paid to French residents, the withholding tax can be recalculated if evidence is provided by that non-resident corporation.

According to the Agreement, if a company is a resident of a Contracting Party and it derives profits or income from the other Contracting Party, the dividends (the term "dividends" includes "income treated as a distribution by the taxation laws of the Contracting Party of which the company making the distribution is a resident") and undistributed profits may not be taxed by that other Party, except the following,

• such dividends are paid to a resident of that other Party; or
• as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other Party.

Therefore, under the Agreement, a Hong Kong resident corporation is exempt from branch remittance tax on its income earned in France.