Hong Kong and Russia enter into CDTA

On 18 January 2016, the Government of the Hong Kong Special Administrative Region of the People’s Republic of China signed an agreement with the Government of Russia for the avoidance of double taxation.  This is the 34th comprehensive agreement for the avoidance of double taxation (“CDTA”) that Hong Kong has signed with its trading partners.  The CDTA with Russia will enhance economic and trade connections between the two places.

First of all, the agreement encourages Hong Kong companies to set up a permanent establishment in Russia. Without CDTA, the profits of Hong Kong companies doing business through a permanent establishment in Russia may be taxed in both sides, if the income is sourced in Hong Kong. After implementing the CDTA, the profits taxed in Russia will be allowed as tax credit in Hong Kong.

Secondly, the agreement attracts qualified Russian talents and professionals to work in Hong Kong. In the absence of a CDTA, income earned by Russian residents in Hong Kong is subject to both Hong Kong and Russian tax. Under this agreement, if the Russian resident who has paid tax in Hong Kong will be allowed to claim a tax credit against the tax payable on the same income in Russia.

Thirdly, Russia’s withholding tax rate to Hong Kong residents in respect of royalties and dividend will be dropped to bolster the trade connections between the two places. Currently, Russia’s withholding tax rate on royalties is 20 percent (for companies) or 30 percent (for individuals). Under the agreement, the rate will be capped at 3 percent. Furthermore, Russia's dividend withholding tax rate on Hong Kong residents will be reduced from the current rate of 15 percent to 5 percent or 10 percent, depending on the proportion of their shareholdings.

Last but not least, the CDTA also reduces the tax on the profits from the operations of shipping or air transport. Under the agreement, Hong Kong airlines operating flights to Russia will be subject to Hong Kong's corporation tax only, and no tax will be charged in Russia. Hong Kong residents earned profits from international shipping transport which arise in Russia, the profits will also be exempted from tax in Russia.

As similar to the CDTA with other tax jurisdictions, the CDTA signed between Hong Kong and Russia has also incorporated an article on exchange of information, which enables Hong Kong to fulfil the international obligations on enhancing tax transparency and combating tax evasion.

For details of the Hong Kong/Russia CDTA, please visit the following website of the Inland Revenue Department:

www.ird.gov.hk/eng/pdf/Agreement_Russia_HongKong.pdf

Disclaimer:
The publication contains information in summary form and is therefore intended for general guidance only. This publication is not intended as legal, accounting or other professional advice and should not be relied upon as such. If legal, accounting or other professional advice or expert assistance is required, the services of a competent professional should be sought. Neither Lau & Au Yeung C.P.A. Limited nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication.