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New tax treaty between Luxembourg and Hong Kong

December 2007 - Tax & Private Client. Legal Developments by Chevalier & Sciales .

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On 2 November 2007, Luxembourg signed a tax treaty with Hong Kong. The maximum withholding taxes that are set out are:

- 0% on dividends if the beneficial owner is a company that directly holds at least 10% in the capital of the distributing company or the participation has an acquisition cost of at least 1,200,000 Euro;

- 10% on dividends in all other cases; 0% on interests; and

- 3% on royalties.

The treaty will enter into force once both States have exchanged instruments of ratification and its provisions will normally apply from 1 January 2008 in Luxembourg and from 1 April 2008 in Hong Kong.

By signing this treaty, Luxembourg is well-positioned comparing to other European countries, as Belgium and Luxembourg are the only European countries having ratified a tax treaty with Hong Kong.

It should furthermore be noted that Luxembourg is an interesting jurisdiction compared to Belgium as the Belgium - Hong Kong treaty threshold for withholding tax exemption is 25% over a period of 12 monhts compared to 10% for the Luxembourg - Hong Kong treaty. There is a 5% withholding tax if the Hong Kong company holds 10% of the shares of the Belgian company and 15% withholding tax in all other cases.

Please note furthermore that a Luxembourg company may issue bearer shares. In Belgium the law of 14 December 2005 has recently abolished as of 1 January 2008 the possibility to issue bearer shares by a Belgian company.

Given that Luxembourg has a very favourable holding regime and an extensive tax treaty network, as well as being a member state of the European Union, Chinese and Hong Kong investors may be able to use this tax treaty as a platform for their European investments.

For more information please visit  or email Olivier Sciales at