On 29 July 2016, the Hong Kong – Russia Income Tax Agreement (2016) entered into force.
The new treaty generally applies from 1 January 2017 for Russia and from 1 April 2017 for Hong Kong. Its main purpose is to increasing investment prospects into the Russian Federation for foreign investors including those registered in Hong Kong.
The new contemporary OECD based treaty, which provide for the credit method to eliminate double taxation and which contains a general ant-abuse provision, includes the following withholding tax rates for passive income:
- The Russian dividend withholding tax rate for Hong Kong residents will be reduced from 15% to either 5% or 10% (the 5% rate being applicable when the beneficial owner of the dividends is a company that has a direct holding of at least 15% of the capital of the dividend-payer).
- The Russian withholding tax rate on interest (currently 20%) will be reduced to 0%.
- The Russian withholding tax rate on royalties (currently 20%) for companies will be reduced from 20% to 3%.
Furthermore, as a rule, income arising from the disposal of shares of Hong Kong company, its assets consisting more than 50% of property on the territory of Russia, can be taxed in Russia.
The treaty contains also an article on exchange of information, which enables Hong Kong and Russia to fulfill their international obligations on enhancing tax transparency and combating tax evasion.
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