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Legal comments on Hong Kong Thailand Double Tax Treaty H&P Tax Law firm in Thailand

During the first quarter of 2020, a big percentage of H&P clients in Thailand came from the jurisdiction of Hong Kong. Following this fact, our lawyers in Bangkok have prepared a summary with the most relevant legal aspects of the tax treaty between Thailand and Hong Kong. The tax treaty between Hong Kong and Thailand was adopted on 7th of December 2005. The benefits under this treaty applies on the Income Tax in which arises among these two jurisdictions, Hong Kong and Thailand. H&P lawyers in Thailand would like to share the following comments on some important incomes which are subject to this treaty:

Immovable Property
If the resident of one contracting state derives income arising from the immoveable property located in the other contracting state, this income may be taxable in the residence country even such income has already been imposed by the country of source.

Business Profits
Most of the tax treaties gives the full rights to the residence country to tax on the business profit of its resident either those arising in its country or in the other contracting state.

Likewise, under this treaty, one contracting state is entitled to impose income tax from on the business profit in which its resident receives from the other contracting state. Meanwhile, the other contracting state could not tax on such income unless the enterprise has its permanent establishment carrying on the business in that contracting state. If it is the case, the source country is entitled to tax only on the business profit attributed to that permanent establishment.

The definition of the permanent establishment is specified in article 5 of this treaty, means a fixed place to wholly or partly carry on the business of enterprise, such as branch, office, factory. However, it does not cover the place for any purpose other than to carry on the business, such as; to storage or display products, to purchase the goods or collect the trade information for the enterprise.

Shipping and Air Transport Business
In case where the resident of one contracting state derives income from the operation of aircraft in the international traffic, this income is taxable only in the residence country. Whereas, the income arising from the operation of ships in the international traffic may be taxable in both countries, provided that the rights of the other contracting state are limited to 50% of the tax base in its country.

The shareholder of one contracting state who receives the dividends from the company incorporated in the other contracting state, may be subject to income tax from both source and resident country. However, the source country where company located shall not impose the income tax on such dividends exceed 10% of the total dividends paid.

The interest paid by the resident of one contracting state to the beneficiary resident in the other contracting state may be taxable in the source country, provided that the rights of the source country to tax on such income is limited to 10-15% of gross amount of the interest depends on the source of interest. Whereas, the residence country has the full rights to tax on this income under this treaty.

Under article 11, the interests are referred to any income arising from the debts regardless of whether it is secured by mortgage or not, income from the bonds or debentures.

In case of the resident of one contracting state receives the royalty income, it will be subject to the income tax of the source country where the royalty income arises. However, this treaty limits the rights of the source country to impose tax on this type of income, which is the source country shall not deduct withholding tax exceed 5-15% of the total royalties depends on the type of rights.

The definitions of the royalties under the treaty is provided on the article 12, covering all income arising from the use of copyright, patent, trademark or the information regarding the industrial, commercial or scientific experience.

If you need legal advice on Tax Law between Thailand and Hong Kong, please contact our lawyers in Thailand at [email protected]

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