Effects of the new Double Taxation Agreement between Switzerland and Hong Kong

in Tax, 22.01.2013

As of 1 January 2013, the new Double Tax Treaty between Switzerland and Hong Kong entered into force. It puts Switzerland in the limelight for outbound investments from China via Hong Kong to Europe. Reversely, it helps companies doing business in Switzerland and other Europeans countries to structure their investments into Hong Kong and the Peoples Republic of China.

Key Issues of the Agreement

The Double Taxation Agreement (DTA) will help investors to better assess their tax liabilities from cross-border economic activities and encourage the flow of investment between Hong Kong and Switzerland.

In Switzerland, the DTA will have effect (i) in respect of taxes withheld at source on amounts paid or credited on or after 1 January 2013; (ii) in respect of other taxes, for taxation years beginning on or after 1 January 2013.

The DTA will have effect in Hong Kong for any year of assessment beginning on or after 1 April 2013.

The withholding tax on dividends, interest and royalties is as follows:

Switzerland Non-treaty Withholding Rate Treaty Withholding Rate
Dividends 35% 0/10%
Interest 35% 0%
Royalties 0% 3%
  1. The DTA contains provisions to deny relief where the main purpose or one of the main purposes of an arrangement by a person is to take advantage of the reduced withholding tax rates.
  2. Withholding tax on dividends is reduced to nil if the beneficial owner of the dividends is (i) a company which holds directly at least 10% of the capital of the company paying the dividends; or (ii) a pension scheme; or (iii) the Hong Kong Monetary Authority.

However, investors wishing to enjoy the beneficial treatment on dividends under the DTA through setting up a Hong Kong intermediate holding company should be mindful of the anti-treaty shopping provision in the dividends article. The anti-treaty provision operates to deny the 0%rate if a Hong Kong company receiving dividends from a Swiss company transfers all or substantially all of such income at any time or in any form to another person not eligible for the same or more favorable treaty benefit enjoyed by the Hong Kong company.

The DTA between Switzerland and Hong Kong is one of an extensive series of agreements Switzerland has set up in order to avoid double taxation of corporations and individuals generating income in multiple countries. Our interactive map provides an overview of the current situation regarding the treaties from a Swiss perspective.

Should you have any questions about the DTA between Switzerland and Hong Kong or any other agreement, please do not hesitate to contact me or my colleagues from KPMG in Switzerland or KPMG’s Global China Practice. Our Global China Practice includes over 9000 professionals in China and Hong Kong and many experts for cross-border business with China around the world. Members of KPMG Switzerland are currently deployed to Beijing and Honk Kong to assist companies in both directions to generate fast and sustainable growth in their respective target markets.


5 Comments

  1. lorraine lee

    Dear Sir
    May I seek advice from your team please?
    Before 1/4/13:
    Royalties=100,000
    Royalties withholding tax=100,000*30%*16.5%=4,950

    After 1/4/13:
    Royalties withholding tax=100,000*3%=3,000

    Would you please advise if i am correct.
    thanks.
    lorraine

  2. stefan

    Dear Lorraine

    As far as I understand the facts of your query your calculations should be correct and the new Treaty should leave you with a 3% wht in HK only.

    Best regards

    Stefan

  3. Rami G Hayek

    Thanks Stefan,
    what is the mechanism or process to claim back withheld tax on dividends in the future pls?
    Rgds
    R

  4. Monica Dolce

    Is it correct that an individual may claim back the following rates on Withholding Tax?
    – For shares: 25 % of the dividend income (30 % in case of shareholding participation starting from 10 %, 35 % for pension funds)
    – For bonds: 35 % of the interest income

    Is there a difference for claiming back the dividend income for an individual account (a/c holder domicile in HK) and a corporate account (BVI company or a HK company)?

    Thank you for your answers in advance.

    Best regards,

  5. Varun

    i have a 50% shareholding in a swiss company. If I transfer shares to the HK Company which I own 100% will I have to pay WHT in Switzerland and claim it back? Or will it be exempt from WHT. Is HK considered offshore or onshore?

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