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Subject
Korea Signed Treaty with Hong Kong
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Date
2014-08-19
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Korea Signed Treaty with Hong Kong

 

Overview

Korea signed a comprehensive double tax agreement (“CDTA”) with Hong Kong on July 2014. K.C. Chan, Hong Kong’s Secretary for Financial Services and the Treasury, and Cho Yong-Chun, The South Korean Consul-General in Hong Kong together signed the CDTA on behalf of their respective jurisdictions, The CDTA between Korea and HK represents the 30th CDTA signed by Hong Kong.

 

Potential benefits for Hong Kong investors under the Korean/HK CDTA included the reduced withholding tax (“WHT”) rates in dividends, interest and royalties. Also, permanent establishment (“PE”) including agent PE is defined in the CDTA, However, the Korea/HK CDTA does not offer any tax relief on capital gains derived by a non-resident from disposal of shares in the other perty regardless of whether the company is a property holding company or not.

 

With the signing of the Korea/HK CDTA, Korea and Hong Kong companies currently investing through an intermediary should revisit their existing holding structures and assess if any such intermediary is still advantageous to the group from a tax perspective.

 

Effective date

If the CDTA is ratified and enters into force within 2014, it will become effective from:

-       1 April 2015 in Hong Kong; and

-       1 April 2015(for taxes withheld at source) and 1 January 2015(for other taxes) in Korea

 

Taxes covered

-       Korea – Incomes Tax, Corporation tax, special tax for rural development and local income tax.

-       Hong Kong – profit tax, salaries tax and property tax

 

 

Withholding tax rates on dividends, interest, royalties and equipment rental under the Korea-Hong Kong CDTA

-       The following table provided a comparison of the non-treaty and treaty withholding tax rates on dividends, interest, royalties and equipment rental derived by a Hong Kong resident company from Korea

 

Dividends

Interest

Royalties

Equipment

rental

Korean non-

Treaty rate *

20%

14%(Korean bodies)/20%

20 %

2 %

Korea/HK

Treaty rates

10% (more than 25 % shares) /15%(Less)

0%/10%

10 %

Nil

*In addition to the indicated tax rates, there is a resident surtax charged at a rates of 10 % of the respective tax rates.

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