31 March 2016
People Advisory Services Alert
Russia has concluded a
Double Tax Treaty with Hong
Kong and ratified the new
Treaty with China
Status of the Treaties
Summary:

The double tax treaty
between Russia and Hong
Kong was signed in
January 2016 and is
expected to be ratified
later this year.

The new double tax treaty
between Russia and China
signed back in October
2014 was ratified in
January 2016. It will take
effect from 2017,
replacing the treaty of 27
May 1994.
The double tax treaty between the Government of Russia and the
Government of Hong Kong was signed on 18 January 2016. The Treaty
is expected to be ratified by the parties later this year. Its provisions
apply to tax periods following the year in which the Treaty is ratified, so
if it is ratified by both parties this year it will apply from 1 January 2017
in Russia and from 1 April 2017 in Hong Kong.
Hong Kong being a special administrative region (SAR) of China, it has
retained its own legal system with the right to sign international
agreements. With the Treaty concluded between Russia and Hong Kong,
double taxation by these two countries can be eliminated, which should
have a significant impact on economic cooperation between the
countries.
As another development, on 31 January 2016 President Putin signed a
law ratifying the double tax treaty with China and related protocols. This
Treaty was signed back in October 2014, replacing the treaty of 27 May
1994 which is currently in force. It is expected that the Parties will
exchange the ratification notes later this year, so that the new Treaty will
come into force. The new Treaty apply to tax periods commencing from 1
January 2017 in both Russia and China.
New Double Tax Treaty between Russia and
China
Because of the significant number of proposed
changes to the existing Treaty between Russia
and China, the parties decided to conclude a
new Treaty intended to encourage investment
between the two states and to reflect
developments over the last 20 years, including,
for example, the recognition of the need for
greater information exchange between countries
on tax matters.
From an individual taxpayer's standpoint, the
approach to taxation of earnings prescribed by
the new Treaty has not generally changed apart
from one condition. Based on Article 15, an
individual pays taxes on all of his/her income in
the country in which he/she resides for more
than 183 days in any 12-month period starting
or ending in the particular tax year (the current
treaty prescribes 183 days in the calendar year).
Further, the new Treaty states a different
approach to the taxation of interest. According
to the current treaty, interest may be taxed in
the contracting country in which it arises at a
tax rate not exceeding 10%. The new Treaty
provides an exemption from withholding tax on
interest arising in a contracting country paid by
a bank of the other contracting country. The
approach to the taxation of dividends and
income arising from immovable property from
the individual taxpayer’s standpoint remains
unchanged in the new Treaty.
Double Tax Treaty between Russia and
Hong Kong
As the basis for the Treaty, Russia and Hong
Kong used the current version of the OECD
Model Convention for Taxes on Income and
Capital. However, there are some differences
triggered by the specific features of Hong Kong
domestic law. In particular, since there is no
property tax in Hong Kong, although a tax on
property is mentioned in the Treaty among Hong
Kong taxes, it is in fact levied not on property as
such, but on income from the use or alienation
of property.
2
Further, the Treaty provides different criteria for
Russia and Hong Kong for the recognition of an
individual as a tax resident. For Hong Kong, a
resident is an individual who generally resides in
SAR Hong Kong, or who resides in SAR Hong
Kong for more than 180 days during a particular
tax year or more than 300 days during two tax
years, one of which is the reporting tax year. For
Russia, a resident is an individual who is liable to
taxation on the basis of Russian law and his/her
residence in Russia. Herewith, an individual is
not recognized as a Russian resident for treaty
purposes if he/she is subject to tax in Russia in
respect of Russian source income exclusively.
In addition, the Treaty contains provisions
prohibiting it from being used solely or primarily
for the purpose of obtaining tax relief on some
types of income, including dividends and
interest. The Treaty also establishes that the
contracting countries are not restricted in their
right to apply domestic laws or measures against
tax evasion.
The Treaty regulates information exchange
between the competent authorities of the
contracting countries in accordance with current
international requirements in the field of
taxation. The Protocol to the Treaty, which is an
integral part of the Treaty, contains a number of
additional provisions. In particular, it states that
any document received in the process of
information exchange or a certificate of
residence issued by the competent authority of
Hong Kong or its authorized representative does
not require legalization or any apostille for the
purpose of its application in Russia. It also
establishes that, in the case of Russia,
information exchange applies to value added
tax, assets tax and tax on the property of
individuals.
Authors:
Anton Ionov
Sergei Makeev
Gueladjo Dicko
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This publication contains information in summary form and is
therefore intended for general guidance only. It is not intended
to be a substitute for detailed research or the exercise of
professional judgment. Neither EYGM Limited nor any other
member of the global Ernst & Young organization can accept
any responsibility for loss occasioned to any person acting or
refraining from action as a result of any material in this
publication. On any specific matter, reference should be made
to the appropriate advisor.