Hong Kong - Dividend

Article 10. Dividends

1.   Dividends paid by a company which is a resident of a Contracting Party to a resident of the other Contracting Party may be taxed in that other Contracting Party.

2.   However, such dividends may also be taxed in the Contracting Party of which the company paying the dividends is a resident and according to the laws of that Contracting Party, but if the beneficial owner of the dividends is a resident of the other Contracting Party, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends.

3.   Notwithstanding the provisions of paragraph 2, the Contracting Party of which the company paying the dividends is a resident shall not levy a tax on dividends paid by that company, if the beneficial owner of the dividends is:

a)   a company, other than a partnership, which is a resident of the other Contracting Party and holds directly at least 10 per cent of the capital of the company paying the dividends, provided that:

(i)   the shares of the company receiving the dividends are regularly traded on a recognised stock exchange;

(ii)  at least 50 per cent of the shares of the company receiving the dividends is owned by a company the shares of which are regularly traded on a recognised stock exchange, but only if the last mentioned company:

A)  is a resident of either Contracting Party; or

B)  is a resident of a member State of the European Union (EU) and that company would be entitled to similar or more favourable benefits as provided by this Article pursuant to a comprehensive arrangement for the avoidance of double taxation between its State of residence and the Contracting Party from which the benefits of this Article are claimed or pursuant to a multilateral agreement to which its State of residence and the Contracting Party from which the benefits of this Article are claimed are a party;

(iii) the company is a bank or insurance company that is established and regulated as such under the laws of the Contracting Party of which it is a resident; or

(iv) the company is a headquarters company for a multinational corporate group which provides a substantial portion of the overall supervision and administration of the group and which has, and exercises, independent discretionary authority to carry out these functions;

b)  a Contracting Party, or a political subdivision or local authority thereof;

c)   an institution created by the Government of a Contracting Party, or a political subdivision or local authority thereof, which is recognised as an integral part of that Government as shall be agreed by mutual agreement of the competent authorities of the Contracting Parties;

d)  a pension fund or scheme as referred to in paragraph 2 of Article 4; or

e)   a company which does not qualify under the conditions mentioned under (i), (ii), (iii) or (iv) of subparagraph (a) or a company other than a company mentioned under subparagraph (c), provided that the competent authority of the Contracting Party which has to grant the benefits determines that the establishment, acquisition or maintenance of the company does not have as its main purpose or one of its main purposes to secure the benefits of this Article.

4.   The competent authorities of the Contracting Parties shall by mutual agreement settle the mode of application of these limitations.

5.   The provisions of paragraphs 2 and 3 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

6.   The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the Contracting Party of which the company making the distribution is a resident.

7.   The provisions of paragraphs 1, 2, 3 and 9 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting Party, carries on business in the other Contracting Party, of which the company paying the dividends is a resident, through a permanent establishment situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

8.   Where a company which is a resident of a Contracting Party derives profits or income from the other Contracting Party, that other Contracting Party may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other Contracting Party or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other Contracting Party, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other Contracting Party.

9.   Notwithstanding the provisions of paragraphs 1, 2 and 8, dividends paid by a company whose capital is divided into shares and which under the laws of a Contracting Party is a resident of that Contracting Party, to an individual who is a resident of the other Contracting Party may be taxed in the first-mentioned Contracting Party in accordance with the laws of that Contracting Party, if that individual – either alone or with his or her spouse – or one of their relations by blood or marriage in the direct line directly or indirectly holds at least 5 per cent of the issued capital of a particular class of shares in that company.

Protocol:

VII. Ad Articles 10 and 13

1.   A person shall be considered a headquarters company for the purposes of paragraph 3, subparagraph (a) (iv) of Article 10 only if:

a)   the corporate group consists of corporations resident in, and engaged in an active business in, at least five countries and the business activities carried on in each of the five countries generate at least 10 per cent of the gross income of the group; and

b)  no more than 50 per cent of its gross income is derived from the Contracting Party of which the company paying the dividend is a resident.

2.   The determination for the purposes of paragraph 3, subparagraph (e) of Article 10 shall be based on all facts and circumstances including:

a)   the nature and volume of the activities of the company in its country of residence in relation to the nature and volume of the dividends;

b)  both the historical and the current ownership of the company; and

c)   the business reasons for the company residing in its country of residence.

The competent authority which has to grant the benefit will consult with the competent authority of the other Contracting Party before denying the benefit.

3.   For the purposes of paragraph 3 of Article 10 and paragraph 4 of Article 13 the term “recognised stock exchange” means:

a)   any of the stock exchanges in the member states of the European Union (EU);

b)  The Stock Exchange of Hong Kong Limited;

c)   any other stock exchange agreed upon by the competent authorities of the Contracting Parties,

provided that the purchase or sale of shares on the stock exchange is not implicitly or explicitly restricted to a limited group of investors.

4.   For the purposes of Article 10, paragraph 3, subparagraph (c), in the case of the Hong Kong Special Administrative Region, institution means in any case:

a)   the Hong Kong Monetary Authority;

b)  a financial establishment appointed by the Government of the Hong Kong Special Administrative Region and mutually agreed upon by the competent authorities of the two Contracting Parties.

Ad Articles 10, 11 and 12

Where tax has been levied at source in excess of the amount of tax chargeable under the provisions of Articles 10, 11 or 12, applications for the refund of the excess amount of tax have to be lodged with the competent authority of the Contracting Party having levied the tax, within a period of three years after the expiration of the calendar year in which the tax has been levied.

IX. Ad Articles 10 and 13

It is understood that income received in connection with the (partial) liquidation of a company or a purchase of own shares by a company is treated as income from shares and not as capital gains.