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On 13 April 2016, Hong Kong concluded a Double Tax Agreement (DTA) with Latvia. The DTA allocates taxing rights between the two jurisdictions, provides for reduced withholding tax rates and gives investors greater certainty on their potential tax liabilities arising from cross-border activities by effectively removing Hong Kong from Latvia’s list of low tax jurisdictions.
The DTA will enter into force after the agreement is ratified by both sides. If the ratification process is concluded in 2016, the DTA will become effective on 1 April 2017 in Hong Kong and 1 January 2017 in Latvia.
Under Article 4 - In the absence of the DTA, income earned by Latvian residents in Hong Kong is subject to both Hong Kong and Latvian income tax. Under the DTA, tax paid in Hong Kong will be offset against income tax payable in Latvia by a Latvian resident.
The DTA also provides for tax paid in Latvia to be offset against salaries tax payable in Hong Kong. This situation might occur when Hong Kong companies with profits attributable to a permanent establishment in Latvia are liable to pay tax in Hong Kong because such profits are regarded as having derived from Hong Kong.
Under Article 8 - Hong Kong airlines operating flights to Latvia will be taxed at Hong Kong's profits tax rate and will not be subject to tax liability in Latvia.
Profits from international shipping transport earned by Hong Kong residents that arising from Latvia, which are currently subject to tax there, will no longer be taxed in Latvia
Under Article 10 and 11 -The dividend and interest withholding tax levied by Latvia on Hong Kong residents will be fixed at 0% for companies and limited to 10% in other cases. On the other hand, Latvian withholding tax on royalties is, under the DTA, 0% for companies and limited to 3% in other cases.
Under Article 24 - the DTA includes an exchange of information article based on the current OECD model treaty standard.
