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The Russian government will no longer consider Hong Kong a Chinese-affiliated tax haven that doesn’t share tax information.
Russia will strike Hong Kong from its list of offshore jurisdictions following ratification of a double tax treaty signed by the two parties last January and ratified by Russia in July, according to a Jan. 10 Russian Finance Ministry announcement. The changes take effect in September 2017.
Hong Kong will now provide tax data to Russia on request, according to Oleg Ponamarev, senior partner at DS Law Attorneys in Moscow.
The double tax treaty between Russia and Hong Kong covers corporate income tax (CIT) and personal income tax in Russia, and CIT, salary income tax, and property tax in Hong Kong. The treaty establishes a 3 percent tax rate on income from royalties and a 10 percent tax rate on dividends—5 percent if the recipient company owns at least 15 percent of the capital of the company paying the dividends.
The Hong Kong Special Administrative Region of the People’s Republic of China is an autonomous territory with a separate political and economic system from China.
Without Hong Kong, the Finance Ministry list of offshore zones will include 39 countries and territories that provide preferential tax regime to businesses or fail to disclose information on financial operations to the Russian authorities. Dealing with companies registered in blacklisted countries or territories sometimes entails unfavorable tax consequences for Russian taxpayers.
For instance, Russian organizations that earn dividends from companies registered in a blacklisted territory can’t apply to those dividends the 0 percent tax rate they otherwise could use. Also, transactions with companies registered in the blacklisted zones are recognized as controlled, which implies the tax authorities’ have a right to review the prices and the taxpayer’s obligation to declare such transactions in case their sum exceeds 60 million rubles per year ($1 million).
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