Избежание двоййного налогообложения между Россией и Гонконгом

In order to improve the international financial climate and combat illegal asset placement between Russia and the SAR of Hong Kong, intergovernmental agreement was signed on January 18, 2016 to avoid double taxation and eliminate violations related to tax evasion.

The mass media report that Yury Zubarev, the state secretary, Deputy Minister of Finance, signed the contract on behalf of the Russian Federation, and Chen Ziqiang, Secretary for Financial Services and Treasury of Hong Kng signed this contract on behalf of the SAR of Hong Kong.

Also, according to media reports, Arkadiy Dvorkovich, Deputy Prime Minister, was present at the signing ceremony. Alexander Kozlov, the general consul of the Russian Federation in Hong Kong, declared that this agreement will significantly affect the growth of financial investments in Russian assets, which is beneficial both for the Russian Federation and for numerous Asian and Western investors that are under the jurisdiction of the SAR of Hong Kong.

The report of CNLegal analysts enables us to analyze the main clauses of this agreement.

This Tax Treaty has own scope and extends only to the territorial entities of the Russian Federation and to the territory of the Hong Kong SAR, where the tax rules of the Hong Kong Special Administrative Region operate according to the instructions of the People's Republic of China.

Despite joining the People's Republic of China in 1997, Hong Kong retained own legal system, the rules of which were based on common law. Becoming a special administrative region of the PRC, it retained the opportunity to conclude international transactions and the right to participate in international organizations.

A good example of the foregoing is that the Hong Kong SAR can independently and unilaterally set tax requirements and be an independent party in international tax deals.

But, it should also be noted that the agreements concluded in other territory of the People's Republic of China do not have legal force in the territory of the special administrative region of Hong Kong.

In the Russian Federation, the effect of the tax agreement applies to the corporate income tax, as well as the tax on the income of individuals. In the Hong Kong SAR, this tax agreement applies to the tax on income, wages and property.

Exchange of tax information between states is being conducted, which affects VAT data, tax on property of legal entities and individuals that is paid in the Russian Federation.

According to the rules of the SAR of Hong Kong, the following entity is recognized as a resident:

- a natural person whose permanent residence is the Hong Kong SAR;

- an individual who resides in the Hong Kong SAR for more than one hundred and eighty calendar days during the tax year or more than three hundred days during two tax years, when one of them is considered as a tax year;

- provided that the organization is managed and controlled from the Hong Kong SAR if it is registered on its territory, or even outside it, but control and management are carried out from Hong Kong;

- any other person has been formed in accordance with the rules of the Hong Kong SAR

In the Russian Federation, each entity that is subject to taxation in accordance with the legislation regarding place of residence, place of permanent deployment, place of registration, or place of actual management or in accordance with a similar criterion, is recognized as a resident.

Secondary characteristics, which establish the residence of natural persons, are the following:

- the availability of permanent housing;

- the sphere of life priorities;

- permanent residence in a certain place;

- provision on nationality: (citizenship in Russia and the right to permanent residence in Hong Kong)

In the event that these characteristics do not help determine the status of an individual, the parties may establish the status of that person by mutual agreement procedure when concluding a contract.

It is worth noting that another characteristic for companies in determining a person is the location of the actual management.

As for the permanent representation, we can give the following example. Proceeding from the provisions of the tax agreement, the term for the formation of a permanent representation with the help of a construction site, installation, assembly and construction object, as well as supervisory activities associated with them is twelve full months.

It can be compared with the fact that, according to the tax treaty between the Russian Federation and the People's Republic of China signed in 2014, the exact same period will be eighteen months, and in accordance with the tax treaty between China and the Hong Kong SAR - only six months.

Through the provision of services, a permanent representation of the service type is formed in the event that the provision of services will continue for more than 183 days on the continuation of any period of twelve months.

It is also necessary to pay attention to the income from air and sea transportation.

The profits of organizations from the use of air and sea vehicles in the sphere of international transportation will be taxed exclusively in the country of which the organization is a resident.

This implies that the income of Hong Kong companies from sea transportation of goods between the Hong Kong SAR and the Russian Federation will not be taxed in the Russian Federation. That is, the company will make financial allocations only to the budget of the SAR of Hong Kong.

Similar situation can be observed in the sphere of air transportation. The profit of airlines from this type of activity is taxed only in the country where it is a resident. Hence, the profits of Russian airlines from air transportation in the Hong Kong SAR will not be subject to Hong Kong tax law, and the profits of Hong Kong companies will not go to the budget of the Russian Federation.

Tax rates for the subject on interest, royalties and dividends. The tax rate of a subject for dividends in accordance with the tax agreement should not exceed five percent, in the event that the beneficial owner of the dividends is an organization that owns at least 15% of the total capital in the enterprise that distributes dividends.

In other situations, the tax rate of the subject on dividends will not exceed ten percent.

Minimum tax rate to dividends will be imposed in the event that a share of the beneficial owner of the company's dividends will reach 15%.

The vast majority of tax treaties imply a minimal share, at which the minimum rate is used, which is about 25%.

It should also be noted that interest paid by a Russian organization to a Hong Kong lender is not subject to taxation in the Russian Federation. In this way, the RF and the Hong Kong SAR are "zeroing" the tax on the subject's profit on interest.

Based on this situation, there is cost reduction, which is related to the involvement of Russian organizations in borrowing of the Hong Kong SAR. Under the tax treaty, withholding tax will not exceed 4% on royalties. The largest tax rate for royalties in the vast majority of tax treaties is between six and ten percent.

You also need to know that the international tax treaties also stipulate provisions for income tax on the alienation of property, as well as ways to eliminate double taxation and the rules for transferring tax information between states.

The profits from extracting the shares of Hong Kong companies, which are more than half of the value of the total number that are formed at the expense of property of Russia, can fall under the payment of taxes in the Russian Federation.

Such profit does not fall under these norms, as regards, firstly, the alienation of shares on the stock exchange. Secondly, it does not concern the extraction of shares during the reformatting of an enterprise, division or merger. Thirdly, if the alienation of company shares is more than half of the value of which is formed at the expense of real estate with the help of which it operates.

Transfer and exchange of tax information concerns only VAT, income tax, as well as tax on property of legal entities and individuals that are paid in the Russian Federation.

As for confirmation of tax residence, it is necessary to note the following.

If the tax contract involves the benefits, then tax residence confirmation is required for their use.

The resident's certificate does not provide for consular legalization or apostillization, including the use of a certificate in courts and state bodies.

Of course, it worth reminding once again that since February 1, 2015 the form of the application has changed in order to confirm the status of the tax resident in the SAR of Hong Kong. It is necessary to provide accurate data to the organization's statement, which proves that it has significant activity in the SAR of Hong Kong. Otherwise, the tax authority of Hong Kong will refuse to issue a certificate, which confirms the status of the tax resident, provided that the activities of the enterprise do not fall into the category of "significant activity".

This tax agreement entered into force between the Russian Federation and the SAR of Hong Kong after its ratification by each party and mutual notification of each other.

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