On November 3, 2015 a press release was published on the website of the Inland Revenue Department of Hong Kong by which the Government of Hong Kong announces that the agreement between the Government of the Hong Kong Special Region of the People’s Republic of China and the Government  of the Republic of South Africa for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income (Hereafter: the DTA) has entered into force. According to the press release the agreement came into force on October 20, 2015.

 

Based on Article 27, Paragraph 2 of the DTA (“Entry into Force “) the fact that the DTA entered into force on October 20, 2015 means that the provisions of the DTA shall apply: 

(a)   in the case of the Hong Kong Special Administrative Region, in respect of Hong Kong Special Administrative Region tax, for any year of assessment beginning on or after April 1, 2016;

(b)   in the case of South Africa,

(i)    with regard to taxes withheld at source, in respect of amounts paid or credited on or after January 1, 2016; and

(ii)   with regard to other taxes, in respect of years of assessment beginning on or after January 1, 2016.

 

Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.

 

Taxes covered

Based on Article 2, Paragraph 3 of the DTA (“Taxes covered”) the existing taxes to which DTA shall apply are in particular:

(a)   in the case of the Hong Kong Special Administrative Region,

(i)    profits tax;

(ii)   salaries tax; and

(iii)  property tax;

whether or not charged under personal assessment;

(b)   in the case of South Africa,

(i)    the normal tax;

(ii)   the withholding tax on royalties;

(iii)  the dividend tax;

(iv)  the withholding tax on interest; and

(v)   the tax on foreign entertainers and sportspersons

 

Paragraph 4 of Article 2 of the DTA subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes, as well as any other taxes falling within paragraphs 1 and 2 of this Article which a Contracting Party may impose in future.

 

Permanent establishment

Paragraph 3 of Article 5 of the DTA (“Permanent establishment”) arranges that he term “permanent establishment” also encompasses:

(a)  a building site, a construction, assembly or installation project or any supervisory activity in connection with such site or project, but only if such site, project or activity continues for a period of more than six months;

(b)  the furnishing of services by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting Party for a period or periods aggregating more than 183 days within any twelve-month period commencing or ending in the taxable period concerned; and

(c)   for an individual, the performing of services in a Contracting Party by that individual, but only if the individual’s stay in that Party is for a period or periods aggregating more than 183 days within any twelve-month period commencing or ending in the taxable period concerned.

 

Associated enterprises

Paragraph 2 of Article 9 of the DTA (“Associated enterprises”) contains a so-called appropriate adjustment clause.

 

Dividends

If the beneficial owner of the dividends is a resident of the other Contracting Party Paragraph 2 of Article 10 of the DTA (“Dividends”) maximizes the dividend withholding tax that a Source State is allowed to withhold over dividend distributions as follows:

(a)   5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 10 per cent of the capital of the company paying the dividends;

(b)   10 per cent of the gross amount of the dividends in all other cases.

 

Paragraph 6 of Article 10 of the DTA contains the following anti-abuse clause: 

“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.”

 

Interest

If the beneficial owner of the interest is a resident of the other Contracting Party, Paragraph 2 of Article 11 of the DTA (“Interest”) maximizes the withholding tax that a Source State is allowed to withhold over interest payments to 10 per cent of the gross amount of the interest.

 

Paragraph 8 of Article 11 of the DTA contains the following anti-abuse clause: 

“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.”

 

Royalties

If the beneficial owner of the interest is a resident of the other Contracting Party, Paragraph 2 of Article 12 of the DTA (“Royalties”) maximizes the withholding tax that a Source State is allowed to withhold over royalty payments to 5 per cent of the gross amount of the royalties.

 

Paragraph 7 of Article 12 of the DTA contains the following anti-abuse clause:

“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.”

 

Capital Gains

With respect to capital gains Paragraph 1 of Article 13 of the DTA (“Capital gains”) arranges that Gains derived by a resident of a Contracting Party from the alienation of immovable property referred to in Article 6 and situated in the other Contracting Party may be taxed in that other Party.

 

Paragraph 4 of Article 13 subsequently arranges that gains derived by a resident of a Contracting Party from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting Party may be taxed in that other Party. However, this paragraph does not apply to gains derived from the alienation of shares:

 

Other

The DTA furthermore includes an article arranging for a Mutual Agreement Procedure (Article 23 of DTA) and an article on the Exchange of Information (Article 24 of the DTA).

 

Click here to be forwarded to DTA and relating Protocol as available on the website of the Inland Revenue Department of the Hong Kong Special Administrative Region, which will open in a new window.

 

Click here to be forwarded to the press release as published on the website of the Inland Revenue Department of the Hong Kong Special Administrative Region.

 

Are you looking for an other DTA? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.

 

 

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