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Hong Kong, Portugal DTA Comes Into Force


It has been announced that the agreement for the avoidance of double taxation (DTA), signed between Hong Kong and Portugal on March 2, 2011, came into force on June 3 this year, after the completion of ratification procedures on both sides.

The DTA determines the allocation of taxing rights between Hong Kong and Portugal and the relief on tax rates on different types of passive income. It is designed to help investors better assess their potential tax liabilities from cross-border economic activities, foster closer economic and trade links between the two countries, and provide added incentives for companies from one country to do business or invest in the other.

Under the agreement, the withholding tax rate on dividends received from Portugal is cut to 10%, and will be further reduced to 5% if the beneficial owner of the dividends is a company (other than a partnership) holding directly at least 10% of the capital of the company paying the dividends.

In addition, the Portuguese withholding tax on interest will be capped at 10% and the Portuguese withholding tax on royalties will be capped at 5%.

Hong Kong airlines operating flights to Portugal will be taxed at Hong Kong's corporation tax rate, which is lower than that of Portugal; and profits from international shipping transport earned by Hong Kong residents that arise in Portugal, which are currently subject to tax there, will not be taxed.

The agreement, which also incorporates the internationally-agreed Organization for Economic Co-operation and Development standard on the exchange of tax information, will be in effect in Hong Kong for any year of assessment beginning on or after April 1, 2013.