Tax and Me what do new Tax Information Agreements mean to me, when I m tax domiciled in Hong Kong. Kim Osborg Nielsen Hong Kong, 17 th October 2013

Transcription

1 Tax and Me what do new Tax Information Agreements mean to me, when I m tax domiciled in Hong Kong Kim Osborg Nielsen Hong Kong, 17 th October 2013

2 Tax in Hong Kong Hong Kong applies the territorial basis of taxation, tax residency is not relevant Income that arises in or from a Hong Kong office or employment are subject to Hong Kong taxes Tax residence is relevant under a double taxation treaty In order to be considered as a resident person in HK, you need to ordinarily reside in HK for more than 180 days during the relevant year of assessment or for more than 300 days in 2 consecutive years 2

3 The attractiveness of Hong Kong taxation: Income tax 17 percent top rate, however the maximum effective rate is 15 percent No wealth tax, estate, inheritance and gift taxes Investment income Dividends Exempt Interest Royalties Rental income Generally exempted Subject to profits tax Subject to profits tax Property tax: Levied as an income tax at 15% on Hong Kong sourced income 3

4 How international double taxation may arise The scope of taxation Hong Kong is on the territorial system, whereas others have adopted a worldwide taxation basis (the Nordic countries) Source rules for income The source rules determine whether income is source taxed in the state where the income arises, or in the state where the income is received A Double Taxation Agreement (DTA) is an agreement between two jurisdictions seeking to avoid double taxation. A DTA can only reduce overall taxation, it cannot impose additional taxes! 4

5 Double Tax Treaties in force in Hong Kong Austria Hungary Malta Thailand Belgium Indonesia Netherlands United Kingdom Brunei Ireland New Zealand Vietnam China Italy Portugal Czech Republic Japan Qatar France Lichtenstein Spain Guernsey Luxembourg Switzerland According to a press release, published on the web site of the official Nordic co operation, negotiations for a tax agreement between Denmark and Hong Kong are currently taking place. 5

6 New Legal Framework in Hong Kong for Entering into Tax Information Exchange Agreements TIEAs: Standalone tax information exchange agreements CDTAs: Comprehensive avoidance of double taxation agreements (OECD) What is new? The Legislative Council has passed the Inland Revenue Bill 2013, which allows Hong Kong to enter into TIEAs with other jurisdictions. Prior to the enactment of the bill, Hong Kong could only exchange tax information if there was an existing CDTA with that jurisdiction. This has been heavily critisised by the OECD 6

7 What does new TIEA s and DTA s mean to me? Potentially lower taxes on dividends on Swedish, Norwegian, Finnish and Danish shares and on royalty taxes for companies Example: Dividend withholding tax for Hong Kong investor (without DTA) Sweden 30 percent Norway 25 percent Finland 30 percent Dividend withholding tax for Singapore investor (with DTA in place) Sweden 15 percent Norway 15 percent Finland 10 percent 7

8 8 Dividend payments

9 Who can benefit from DTAs? Only residents can benefit of the DTA. A resident is defined as: 1. An individual: A person who ordinarily reside in HK for more than 180 days during the relevant year of assessment or for more than 300 days in 2 consecutive years 2. A company or body of persons in control, whose business is exercised in Hong Kong 9

10 OECD Article 26 on Mutual Assistance in Tax Matters Tax Avoidance versus Tax Evasion EU withholding taxes Automatic exchange of information involves the systematic and periodic transmission of bulk taxpayer information by the source country to the residence country concerning dividends, interest, royalties etc. Name and address is enough, but no fishing expeditions allowed Access to information on investment income and beneficial owners Switzerland wants to clean up 10

11 More transparency case study The tax authorities of State A conduct a tax investigation into the affairs of Mr. X. Based on this investigation the tax authorities have indications that Mr. X holds one or several undeclared bank accounts with Bank B in State B. However, State A has experienced that, in order to avoid detection, it is not unlikely that the bank accounts may be held in the name of relatives of the beneficial owner. State A therefore requests information on all accounts with Bank B of which Mr. X is the beneficial owner and all accounts held in the names of his spouse E and his children K and L. 11

12 More transparency case study II Company A, resident of State A, is owned by foreign unlisted Company B, resident of State B. The tax authorities of State A suspect that managers X, Y and Z of Company A directly or indirectly own Company B. If that were the case, the dividends received by Company B from Company A would be taxable in their hands as resident shareholders under country A s controlled foreign company rules. The suspicion is based on information provided to State A s tax authorities by a former employee of Company A. When confronted with the allegations, the three managers of Company A deny having any ownership interest in Company B. The State A tax authorities have exhausted all domestic means of obtaining ownership information on Company B. State A now requests from State B information on whether X, Y and Z are shareholders of Company B. Furthermore, considering that ownership in such cases is often held through, for example, shell companies and nominee shareholders it requests information from State B on whether X, Y and Z indirectly hold an ownership interest in Company B. If State B is unable to determine whether X, Y or Z holds such an indirect interest, information is requested on the shareholder(s) so that it can continue its investigations. 12

13 Voluntary Disclosure The Hong Kong tax authorities accept and encourage voluntary disclosures of undeclared taxable income. A full voluntary disclosure would reduce the amount of potential penalties significantly. In order to constitute a full voluntary disclosure, a taxpayer must make a complete disclosure of the undeclared taxable income. Otherwise, the tax authorities can treat the case as an incomplete disclosure, which would attract heavier penalties. The maximum penalty is 300% of the amount of tax involved, in addition to the tax itself. Penalties at this level are almost unheard of. 13

14 Also China joins international efforts to end tax evasion Mr. Angel Gurria, OECD Secretary General and Mr. WANG Jun, Chinese Tax Commissioner On 27 th. August 2013 China signed the Multilateral Convention on Administrative Assistance in Tax Matters at a ceremony held at the OECD 14

15 DTA advantages for companies - Danish example What does it require to avoid Danish taxation on Hong Kong salary income, when moving to Hong Kong? - The employee disposes of residential property in Denmark, or - The employee is renting out the residential property in Denmark, irrevocably for at least 3 years - Centre of life-interest is not in Denmark - Also, Danish taxation on foreign salary income can be avoided, if the person establishes permanent residency in HK according to a Double Tax Agreement 15

16 What if I sell my house in Denmark, do I then still need to pay Danish tax? Can I own a holiday house without being tax liable to Denmark? I am expatriated for a Danish company, versus a local company. Am I then tax liable to Denmark? I am on a local contract instead of an expatriate contract, do Ithen avoid Danish taxation or is it the property in Denmark which determines my tax? Is the tax only related to salary or also investment income? 16

17 Wealth Planning the right way Wealth Planning Structure of investments, succession and inheritance planning Tax Planning Trusts Trusts can be an effective vehicle for asset protection against the creditors of an individual. The use of trusts normally allows for greater flexibility Tax Planning Companies For 2013 the profits tax rate for companies is a flat 16.5%. Income is subject to tax if it has a Hong Kong source. There is no taxation, however, of capital gains. 17 9

18 Thank you for your attention! Kim Osborg Nielsen Private Banking Mobile:

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