3. PROACTIVE DOUBLE TAX TREATY POLICY
Belgium signed several uncommon double taxation treaties. The network of treaties concluded by Belgium has been reinforced in the past years in the direction of the US, Asia (treaty with Hong Kong and Singapore), the Middle East (treaties in effect with the United Arab Emirates, signed with Bahrain, Qatar, Oman), Africa (treaties in effect with Congo, Ghana, Rwanda, Gabon,…) but also with countries often regarded as tax havens (treaty in effect with San Marino, treaties signed with the Seychelles, Macao, the Isle of Man…). In addition, the treaty negotiating process has become open and transparent in order to create a continuous dialogue with taxpayers and their advisers.
The Belgian – Hong Kong Treaty was signed on 10 December 2003 and came into effect in Belgium on 1 January 2004 and in Hong Kong on 1 April 2004. As one of the very few double taxation treaties entered into by Hong Kong, it is a very interesting tool for international tax planning purposes. The treaty’s main features are sketched out below.
3.I. Dividends withholding tax – Using Belgium as the location for an intermediate holding company
According to the Treaty, the WHT on dividends between Belgium and Hong Kong is limited to:
• Nil if the beneficial owner of the dividends is a company which at the moment of payment of the dividends held, for an uninterrupted period of at least twelve months, shares representing directly at least 25% of the capital of the company paying the dividends;
• 5% of the gross amount of the dividends if the beneficial owner is a company which directly holds at least 10% of the capital of the company paying the dividends;
• 15% of the gross amount of the dividends in all other cases.
A Belgian company may therefore be used by a Hong Kong parent company as a holding company to hold various subsidiaries within the EU and repatriate dividends free of WHT.
Alternatively, a Belgian company can be used as a holding company by a European parent company to hold a Hong Kong subsidiary and, hence, various companies in China and Asia.
As regards co-investment in (mainland) China made through a Hong Kong company, there is also a peculiarity in the arrangement between the mainland of China and the Hong Kong Special Administrative Region for the avoidance of double taxation (applicable as of 1 April 2007): capital gains realized on shares owned by a Hong Kong company in a Chinese company are only taxable in Hong Kong (i.e. no taxation) provided the Hong Kong company does not own more than 25% of the Chinese subsidiary. In other cases, the capital gains are taxable in China.
3.2. WHT on interest – Using Belgium as the location for an intragroup financing company
The Treaty provides for 0% WHT on interest from:
• commercial debt-claims represented by commercial paper resulting from deferred payment for goods, merchandise or services supplied by an enterprise;
• debt-claims or loans of any nature (not represented by bearer instruments) paid to banking enterprises;
• deposits made by an enterprise with a bank;
• certain loans related to the Hong Kong or Belgian governments.
The 0% WHT rate combined with the NID enhances the attractiveness of Belgium as a location for financing companies. (…)
3.3. Royalties derived from or paid to a Belgian company
Under the Treaty, the WHT on royalties is capped at 5% of their gross amount.
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