The advantages of the double taxation agreement apply to any company incorporated under the laws of, or nominally managed or controlled in, Hong Kong and include 0% withholding tax on both dividends and interest, and a 3% withholding tax on royalties. One notable exception to the agreement is recipients of dividends who do not own at least 10% of the companyÆs capital or whose cost for the acquisition of the shareholding was less than Ç1.2 million ($1.74 million), who is subject to a 10% dividend withholding tax.
The double taxation agreement was signed in November 2007 and was supposed to come into force in April 2008, however, the Luxembourg legislature has not yet ratified the agreement. KPMG estimates that the agreement will take effect in Luxembourg at the end of 2008. It already did so in Hong Kong in April.
According to executive director of the Board of Economic Development of Luxembourg in China, Pierre Ferring, Luxembourg represents a stepping stone for businesses doing business in the EU. ôLuxembourg is to the EU what Hong Kong is to China,ö says Ferring.
The Luxembourg market is the largest in the EU for private equity and real estate deals and had Ç1.9 trillion ($2.76 trillion) in assets under management in 2007. KPMG Hong Kong/Luxembourg senior manager Miriam Keusen explained at a Hong Kong General Chamber of Commerce event that LuxembourgÆs strengths as an investment jurisdiction include an approvals process as short as two days, treaty protection for investments in third countries and an established international finance environment that has experience with foreign private equity, real estate holdings, funds, banks and trade and logistics operations.
Outside the EU, the double taxation agreement gives resident Hong Kong companies access to 25 additional markets with which Luxembourg has existing tax agreements.
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