Protocol between Luxembourg and Spain amending the double tax treaty
On the sidelines of the European Council of Finance Ministers (Ecofin) meeting, an amendment to the existing bilateral double taxation agreement in place between Luxembourg and Spain has been executed by the Luxembourg Minister of Finance and its Spanish opposite on 10 November 2009.
In accordance with the OECD standard, the protocol provides for an exchange of information in specific cases between the respective tax authorities.
Such protocol is very important for the development of the international activities of Luxembourg's financial center, and notably its investment fund sector: Luxembourg will no longer be considered as a tax haven according to the royal Spanish decree which define tax havens.
Luxembourg - Hong Kong double tax treaty entered into force
The Luxembourg - Hong Kong double tax treaty has entered into force on 20 January 2009 following the exchange of the ratification documents.
We set out hereunder the main features of this treaty. The maximum withholding taxes that will be applicable are as follows:
- 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 paid from Hong Kong to Luxembourg. According to Luxembourg internal law, royalties other than royalties for the use of, or the right to use, any copyright of literacy or artistic work are not subject to withholding tax.
Capital gains realised on the sale of assets are taxed in the place where the seller is resident, except if the sold asset qualifies as:
- immovable property situated in the other contracting party;
- movable property allocated to a permanent establishment in the other contracting party;
- shares of a company more than 50% of the value of which is derived directly or indirectly from immovable property situated in the other contracting party;
In other words, a sale of shares held by a Luxembourg parent company in a Hong Kong subsidiary will be only taxable in Luxembourg. In accordance with Luxembourg internal law, such capital gains will be exempted from capital gains tax if the Luxembourg company owns more than 10% of the capital in the Hong Kong subsidiary and the disposal takes place within 6 months of the acquisition of the shareholding.
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.
Tax treaty between Luxembourg and Hong Kong
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.