CONVENTION FOR THE AVOIDANCE OF DOUBLE TAXATION BETWEEN SPAIN AND HONG KONG

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Dear Ladies and Gentlemen,

The Hong Kong Government has met all legal requirements, in accordance with their rules, to produce the entry into force of the Double Taxation Convention (CDI) between Spain and Hong Kong, signed on April 1, 2011. The entry into force of the Convention was officially last April 13, 2012, by which the former British colony loses its tax haven status for Spanish economic interests, practical effects exist broadly Convention from 1 April 2013.

The Convention aims to prevent or minimize double taxation between the two countries and regular exchanges of information between Spain and Hong Kong.

Following the basic structure of the OECD model, the CDI is divided into twenty-six chapters and articles, plus a protocol that includes provisions and clarifications on certain articles of the Convention.

INCOME TAXATION OF DIFFERENT

In the third chapter addresses the issue of Different Income Taxation. In this area, we expose the taxation that occurs in each case to the main income residents of a state that can be perceived from the other state.

Dividends

There will be a rate of 0% if the recipient of the dividends is a company resident in Spain or Hong Kong which holds directly at least 25% stake in the company that distributes them. In other words, the retention is 10% maximum.

The elimination of dividend taxation implies that Spain may be an interesting country to Hong Kong’s channel investments in Latin America, Spain having a good network of agreements to avoid double taxation with Latin American countries.

Interests

The retention of the interest paid by individuals or companies located in one of the Contracting States to a resident of the other Contracting State may not exceed 5% of the gross amount of the interest.

From April 1, 2013, will reduce the tax in Spain on dividends and interest paid to tax residents in Hong Kong (from 21% to 0%, 5% or 10%, depending on the case), favoring the uptake Hong Kong’s investment in Spain.

Fees or royalties

The retention by the canons obtained in a Contracting State and paid to a resident of the other Contracting State may not exceed 5% of the gross amount.

Capital gains

Selling equity is taxed only in the Contracting State of residence of the seller, except:

(I) unlisted companies whose value is derived directly or indirectly more than 50% of real property situated in the other Contracting State (property clause)

(Ii) The shares or other rights directly or indirectly give its owner the right to use immovable property situated in Spain or Hong Kong.

Compensation of employees

Remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(I) the recipient is present in the other State for more than 183 days in any 12 month period

(Ii) the remuneration is paid by an employer who is not a resident of the other State

(Iii) the remuneration is not borne by a permanent establishment in the other State

METHODS FOR ELIMINATION OF DOUBLE TAXATION

In the fourth chapter deals with the methods for Elimination of Double Taxation. In this context it is important to note the following:

Under the Corporation Tax rules in accordance with the provisions of Article 21 of the Convention for the Avoidance of Double Taxation signed between Spain and Hong Kong, it will be possible or benefit from international double taxation or exemption method progression, provided that some assumptions are met established.

REFLECTIONS ON THE NEW CONVENTION FOR THE AVOIDANCE OF DOUBLE TAXATION

Explains the general secretary of the Spanish Chamber of Commerce in Hong Kong, Borja Sánchez, these new measures substantially increase the attractiveness of investing in Hong Kong and ” Spanish companies placed in equilibrium with respect to third-country companies already had signed bilateral tax agreements of this nature . “

The signing of the CDI will allow ” a rapprochement between the economies of Hong Kong and Spain, especially helping to increase investment flows between the two enclaves “adds Sanchez.

Another print is left Efe Spain’s consul in Hong Kong, Juan Manuel Lopez Nadal, considering that the entry into force of this agreement ” comes at a very opportune time given the significant increase of Spanish companies and investors that contact us lately interested in establishing trade relations with China through Hong Kong, as an alternative to deal with the crisis. “

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