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Thursday, June 7th, 2012

Spain and Hong Kong collaborate with the Double Taxation Agreement

Spain and Hong Kong collaborate with the Double Taxation AgreementThis contract, which was signed on 1st April 2011 in Hong Kong, was passed on 16th April 2012 and joined the 2 continents together.

This tax treaty, which was originally called the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion, is similar to past agreements between Hong Kong and other countries such as Belgium, Switzerland, Kuwait and Japan.

This agreement avoids double taxation and tax evasion as well as the treaty providing taxing rights of the parties involved and the taxable status and rates of the passive income and assets. This results in creating clear instructions for investors and allows them to visualise the tax implications of potential investment, trade, purchasing property or similar activities, and avoiding a double tax bill.

The benefit of this is to increase trade and investment between the 2 countries by avoiding tax issues and making sure that profits, income and other taxable assets paid in one country balance with the other country. Moreover, tax rates will be capped at lower rates than usual in Spain, and can be reduced to 0% in the case of a company that holds at least 25% of the assets of the taxable enterprise.

Spain and Hong Kong collaborate with the Double Taxation AgreementIn order to increase trade and investment into Spain from Hong Kong, there needs to be a reduction in withholding taxes on interest (19%) and royalties (24%) to 5% and an elimination of Brand Profit Tax (19%) completely. This agreement can only be successful if it is correctly managed and thus a lot of time and effort has been spent in creating a practical structure for exchanging information between the 2 countries.

Although this agreement is based mainly on Spanish tax concession, it is an important step in ensuring an increased flow of investment and property purchases by Hong Kong investors in Spain. This process involved the collaboration of the Consulate General of Spain and the Spanish Trade Commission in Hong Kong, who have successfully reached a new and very significant market.

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