Residents in Hong Kong and Belgium can now claim tax relief or tax savings on their income derived in each other's jurisdiction from businesses, employment or investment.

The Agreement for the Avoidance of Double Taxation & the Prevention of Fiscal Evasion with respect to Taxes on Income & on Capital, signed by the two governments last December, came into force on October 7.

Eliminating double taxation

Commissioner of Inland Revenue Alice Lau said the unprecedented agreement seeks to eliminate double taxation instances encountered by Hong Kong and Belgian investors through the allocation of taxing rights and the provision of tax relief.

"It also formalises the tax relief being offered by the two tax authorities unilaterally at present, thereby providing a further level of certainty and stability to potential investors," Mrs Lau said, adding in some instances, taxes are reduced, which will bring about tax savings and promote investment flow between the two places.

In real terms, Belgian residents doing business in Hong Kong through a permanent establishment will have the relevant Hong Kong income exempted from tax in Belgium. 

Ship and aircraft operators will only be subject to tax in either Hong Kong or Belgium on income they derive from international traffic.

Withholding rates of taxes on investment income of dividend and interest, and on royalties income in Belgium will be lowered as provided for under the agreement.

Negotiations with other tax administrations underway

The agreement represents an important milestone in Hong Kong's own programme of comprehensive double taxation agreements.

Hong Kong concluded a double taxation arrangement with the Mainland in 1998 that deals with business income, income from personal services and transportation income.

On the international traffic side, which is more susceptible to double taxation, Hong Kong has concluded 18 double taxation avoidance arrangements on airline income, five on shipping income and two on airline and shipping income.

The Government is keen to establish a network of double taxation agreements with its major trading and investment partners. Negotiations with other tax administrations for such agreements are underway or being scheduled.