The double Tax Treaty between Serbia and Hong Kong, signed in August 2020, will come into force by mid-February after it was ratified by the Serbian Government on 3 February 2021 (“DTT”).
DTT aims to attract potential investors and deepen the economic relations between the countries by providing grounds for the elimination of double taxation of income and property, and the prevention of tax evasion.
The DTT introduces a maximum 5% withholding tax rate for dividends paid by a company to its shareholder company directly owning at least 25% of the capital of the company paying the dividends during the period of 365 days. A maximum of 10% withholding tax rate applies to the payment of dividends, paid to shareholders owning less than 25% of the company’s capital. Dividends may be regularly taxed in the shareholder’s country of residence as well.
Interests and royalties are generally taxable in the country of residence of the company receiving the interests and royalties, but they can also be taxable in the country of residence of the company paying the interests and royalties. DTT caps the withholding tax on interest to a 10% rate and provides a 0% rate for interest payable to certain public bodies in Serbia and Hong Kong respectively. Regarding royalties, the withholding tax rate is capped to a 10% rate for royalties payable for the usage of industrial property rights (e.g. patents, trademarks, etc) and a 5% rate for royalties payable for the usage of authorship and related rights (e.g. literary works, artworks, etc.).
Generally, gains realised on the sale of real estate are taxed only in the country where such real estate is located, while gains realised on the sale of other, movable property should be taxed only in the country of the seller. The DTT follows the principle of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting when it comes to the regulation of capital gains tax on the sale of shares. If more than 50% of the value of the company is derived from immovable property within 365 days prior to sale, the sale of shares over such a company may be taxable in the country of residence of the company subject to the sale. In all other cases, the sale of shares is taxable in the seller’s country of residence.
Finally, it is expected that Hong Kong will now be excluded from the Rulebook on the list of countries with a preferential tax regime, as the DTT comes into force.