Tax Agreement between Hong Kong and Spain
On 1 April 2011, Hong Kong signed a comprehensive double taxation agreement (CDTA) with Spain. This brings the number of CDTAs Hong Kong has concluded with other jurisdictions to twenty.
The CDTA with Spain contains several favourable provisions, which are expected to further promote investment and trading between Hong Kong and Spain. This alert summarizes the salient points of those provisions as applicable to Hong Kong residents.
Active business profits of a Hong Kong resident enterprise will not be liable to tax in Spain unless they are attributable to a permanent establishment (PE) maintained by the Hong Kong enterprise in Spain. Where a Hong Kong enterprise has maintained a PE in Spain, only profits attributable to the PE would be liable to tax in Spain.
A building site or construction or installation project in Spain of a Hong Kong resident enterprise will constitute a PE in Spain only if it lasts more than nine months. This is more favourable than the six months period specified in the model tax treaty convention of the Organization for Economic Cooperation and Development.
For other general types of services such as consultancy services, there is however no provision by which the mere rendering of services in Spain by a Hong Kong resident enterprise through its employees or other personnel exceeding a certain threshold will be deemed to constitute a PE in Spain.
A Hong Kong resident enterprise will not be liable to tax in Spain if it simply maintains a buying office in Spain which only makes purchases for the Hong Kong resident enterprise.
Hong Kong resident airliners and ship owners will not be subject to tax in Spain in respect of profits derived from international traffic.
A Hong Kong resident enterprise will not be subject to the additional Branch Remittance Tax (currently being 19%) on the after-tax profits remitted from its branch in Spain.