Hong Kong and France Sign Double Taxation Agreement

November 5, 2010 Posted by China Briefing Reading Time: 2 minutes

Nov. 5 – Hong Kong and France signed a taxation agreement late last month to prevent double taxation as well as its repercussions; namely, tax evasion on income taxes and capital.

The 46-page agreement, signed on October 21, specifically outlines the procedures and guidelines for dual citizens, as well as multinational corporations, to obtain tax credit from either Hong Kong or France in avoiding double taxation.

The agreement applies to different taxes for the two different territories. For France, the agreement refers to income tax, corporate tax, contributions of corporate tax, tax on salary, social security tax, and the wealth tax. For Hong Kong, the agreement only addresses profits tax, salary tax, and property tax.

The treaty defines where enterprises hold permanent establishment, which dictates the manner and grade in which they will be taxed. A permanent establishment is “a fixed place of business through which the business of an enterprise is wholly or partly carried on.”

For a permanent establishment to be legitimate, the enterprise must have been carried out in that territory for longer than six months, either by construction or through providing services. Places such as storage facilities, purchasing entities, and individuals do not qualify as a permanent establishment.

The treaty states that residents or holders of permanent establishments of a certain territory may obtain tax credit from the other territory to prevent double taxation. For either Hong Kong or France, the tax credit obtained for the other territory may not exceed the tax amount imposed on the enterprise.

The document also addresses taxes on capital, as well as taxes on students, actors, athletes, shipping and transportation, and other industry-specific taxation procedures.

The agreement will be implemented on a different timeline according to the respective territory. France will adopt the treaty in the next calendar year; Hong Kong will observe the provisions of the agreement on or after April 1, 2011.