Hong Kong has signed an agreement on 14 January 2013 with Italy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. The agreement generally follows the provisions of the OECD Model and has incorporated an article on exchange of information.
Under the agreement a permanent establishment arises where a building site or construction project and associated supervisory activities continues for more than six months. A permanent establishment is also created where an enterprise furnishes services through employees or other staff in connection with a site, project or related supervisory activities if the services continue for more than six months in a twelve month period.
In the absence of a double tax agreement (DTA), interest received by the Hong Kong resident from Italy is subject to Italy’s withholding tax at the rate of 20 per cent. This withholding tax will be at 12.5 per cent under the new agreement. The Italian withholding tax on royalties which is currently at 22.5 per cent will be capped at 15 per cent. The Italian dividends withholding tax on Hong Kong residents will be reduced from the current rate of 20 per cent to 10 per cent.
The DTA will come into force after the completion of confirmation procedures on both sides.
