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A Brief Guide to the Double Tax Treaty between Hong Kong and Russia

by | Dec 29, 2021 | Company Management

The double tax treaty between Russia and the Government of Hong Kong Special Administrative Region of the People’s Republic of China, also known as the Treaty, was enforced by Russia and Hong Kong since 1 January 2017 and 1 April 2017 respectively.

The comprehensive double tax treaty was designed to ease the business and economic relationship, as well as facilitate smooth trading between Russia and Hong Kong. The Treaty was inspired by the Model Agreement approved by the Russian Government’s Resolution no. 84 enacted on 24 February 2010. Guided by prevailing OECD and UN documents during the Treaty’s negotiation phase, the agreement now provides Russians reduced corporate income and personal income tax rates for payment transactions to Hong Kong tax residents and ultimate elimination of double taxation for residents of both jurisdictions.

Here are some defining provisions of the Treaty:

  • Any Russian company incorporated in Hong Kong is automatically recognized as a resident Hong Kong company.
  • A Russian company is considered a resident Hong Kong legal entity if managed and controlled from the city itself.
  • Income generated by a Hong Kong resident company in Russia will not be assessed with tax in the Russian Federation.
  • The only time a Hong Kong resident company in Russia will be assessed with tax is on profits made in the Russian Federation.

Here is a quick rundown of comparative tax rates that are applicable under the Treaty (in Russia as of 1 January 2017) and under Russian Law (until December 2016)

Applicable Rates under Russian Law (until December 2016) Applicable Rates under the Treaty ( starting 1 January 2017)
Dividends 15% 5% for beneficial owner of dividends under the following instances:

  • A company (other than a partnership structure)
  • Direct ownership of at least 15% capital in the company paying dividends

Otherwise, a 10% rate applies in all other cases
Interest 20% 0%
Royalties 20% 3%
Capital Gains 20% By rule, 0%

20% of capital gains are derived from the following:

  • Alienation of an immovable property
  • Alienation of shares deriving more than 50% of its assets directly or indirectly from an immovable property situated in the other contracting jurisdiction. This provision is not applicable to gains from alienation of shares in the following circumstances:
  1.  Exchanged as part of company reorganization.
  2. A company that generates more than 50% of its asset value from an immovable property where business operations are held.
  3.  Quoted on such stock exchange as agreed upon by both parties of the Treaty.
Other Income 20% 0%

 

Our consultants at Damalion can give you detailed information and  help you in navigating the impact of the Hong Kong-Russia Double Tax Treaty on your business in both jurisdictions.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.