On 2 November 2007, Luxembourg signed a tax treaty with Hong Kong. The maximum withholding taxes that are set out are:
- 0% on dividends if the beneficial owner is a company that directly holds at least 10% in the capital of the distributing company or the participation has an acquisition cost of at least 1,200,000 Euro;
- 10% on dividends in all other cases;
- 0% on interests; and
- 3% on royalties.
The treaty will enter into force once both States have exchanged instruments of ratification and its provisions will normally apply from 1 January 2008 in Luxembourg and from 1 April 2008 in Hong Kong.
By signing this treaty, Luxembourg is well-positioned comparing to other European countries, as Belgium and Luxembourg are the only European countries having ratified a tax treaty with Hong Kong.
It should furthermore be noted that Luxembourg is an interesting jurisdiction compared to Belgium as the Belgium Hong Kong treaty threshold for withholding tax exemption is 25% over a period of 12 monhts compared to 10% for the Luxembourg – Hong Kong treaty. There is a 5% withholding tax if the Hong Kong company holds 10% of the shares of the Belgian company and 15% withholding tax in all other cases. Please note furthermore that a Luxembourg company may issue bearer shares. In Belgium the law of 14 December 2005 has recently abolished as of 1 January 2008 the possibility to issue bearer shares by a Belgian company.
Given that Luxembourg has a very favourable holding regime and an extensive tax treaty network, as well as being a member state of the European Union, Chinese and Hong Kong investors may be able to use this tax treaty as a platform for their European investments.
