Details of the Finland - Hong Kong Income Tax Agreement (2018) and protocol, signed on 24 May 2018, have become available. The agreement was concluded in the English language. The agreement generally applies from 1 January 2019 for Finland and from 1 April 2019 for Hong Kong. From this date, the new agreement generally replaces the Finland - Hong Kong Transport Tax Agreement (2007). The agreement generally follows the OECD Model (2017).
The maximum rates of withholding tax are:
- 10% on dividends in general and 5% if the beneficial owner is a company (other than a partnership) controlling directly at least 10% of the voting power of the company paying the dividends;
- 0% on interest; and
- 3% on royalties.
Deviations from the OECD Model include that:
- the tie-breaker rule for individuals states that if an individual has:
- an habitual abode in both contracting parties or in neither of them, he is deemed to be a resident only of the party in which he has the right of abode (in the case of Hong Kong) or of which he is a national (in the case of Finland) (article 2(2)(c));
- the right of abode in Hong Kong and is also a national of Finland, or if he does not have the right of abode in Hong Kong nor is he a national of Finland, the competent authorities of the contracting parties will determine by mutual agreement in which party the person is deemed to be a resident for the agreement purposes (article 2(2)(d)).
- where a person, other than an individual, is a resident of both contracting parties, the competent authorities of the contracting parties will determine by mutual agreement in which party the person is deemed to be a resident for the agreement purposes (article 3(3));
- the term "permanent establishment" (PE) also encompasses:
- a building site, a construction, assembly or installation project or supervisory activities in connection therewith, if such site, project or activities last more than 9 months; and
- the furnishing of services, including consultancy services, by an enterprise directly or through employees or other personnel engaged by the enterprise for such purpose, if activities of that nature continue (for the same or a connected project) for a period or periods aggregating more than 270 days within any 12-month period (article 5(3)).
- the definition of royalties includes payments for the use or right to use film or tapes for radio or television broadcasting (article 12(3));
- royalties are deemed to arise in a contracting party when the payer is a resident of that party. Where, however, the person paying the royalties, whether he is a resident of a contracting party or not, has in a contracting party a PE in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such PE, then such royalties are deemed to arise in the PE party (article 12(5));
- the agreement includes an article on entitlement to agreement benefits (article 21); and
- neither contracting party may terminate the agreement before 5 years has passed from the date the agreement has entered into force (article 29).
Both parties generally provide for the credit method to avoid double taxation. Finland also provides for the exemption-with-progression method to avoid double taxation.