In 2003 Hong Kong and Belgium signed a Double Taxation Agreement (DTA). This agreement creates many LEGAL fiscal advantages with respect to taxes on income and capital. This comprehensive tax treaty culminates into tax savings for Belgian and Hong Kong investors doing business in each other's jurisdictions; through tax rights between the two countries and tax relief in case of double taxation.
One important element that deserves particular emphasis is in relation to taxation on profits paid as dividends from a Hong Kong company to its parent company incorporated in Belgium. The agreement ensures that dividends paid from a Hong Kong company to its parent company in Belgium are only subject to Belgium corporation tax of 33.99% on only 5% of the dividend.
For example a dividend of US$200,000 would be subject to taxation of just US$3399.
Considering dividends are not taxed at source in Hong Kong this becomes a very tax efficient method of remitting profits from Hong Kong to a country in the EU.
Furthermore, despite the fact that the agreement is only between Hong Kong and Belgium, due to Belgium's membership in the EU dividends that have been taxed in one member state can be remitted to other member states without further taxation.
It is important to highlight that the ultimate shareholders will be required to adhere to the tax requirements of the jurisdictions that they are resident in.
As explained, this DTA can create sufficient tax advantages for those that wish to reduce tax on dividends that they plan to repatriate to their country of residence in addition to the reduction of taxation on profits paid from a Hong Kong company.
The treaty provides an exemption of withholding tax on dividends if the beneficial owner is a company resident in the other state, holding a participation of 25% for at least 12 months. Dividends from a Hong Kong subsidiary are not liable to any withholding in Hong Kong and would therefore qualify for the dividend exemption in a Belgian holding company as the below table illustrates:
| Type of income of Belgian origin | Taxation at source | Taxed in HK |
|---|---|---|
| Dividends (< 25% shareholding) | 15% | None |
| Dividends (>= 25% shareholding) | 0% | None |
| Interest of Belgian origin | 10% | None |
| Royalties of Belgian origin | 5% | None |
| Profits on Belgian assets | None | None |
Belgium has extended the benefits of the EU Parent-Subsidiary Directive to parent companies established in a country that it has signed a double taxation convention with Belgium. To qualify for the withholding tax exemption, the parent company must be resident in the tax treaty country and it must have an appropriate corporate legal form. Since most corporate legal forms exist in one or other EU Member State this is not normally a problem. The parent company must hold a direct and uninterrupted participating interest of at least 15 percent (10 percent from 2009) in the capital of the Belgian subsidiary for twelve months. If they fall within the scope of the Directive, parent companies will be entitled to the zero rate on dividends. The following structure may occur:
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