“This is the 35th CDTA that Hong Kong has signed with its trading partners and it signifies the Government’s ongoing efforts to expand its CDTA network,” Chan said. “The CDTA sets out clearly the allocation of taxing rights between the two jurisdictions and thus will help investors better assess their potential tax liabilities from cross-border economic activities.”
The Hong Kong Government explained that, in the absence of a CDTA, the profits of Hong Kong companies doing business through a permanent establishment in Latvia may be taxed in both places if the income is Hong Kong sourced. Under the agreement, Latvian tax payments will be allowed as a credit against the tax payable in Hong Kong on the same profits.
In addition, income earned by Latvian residents in Hong Kong is currently subject to both Hong Kong and Latvian tax. Under the CDTA, tax paid in Hong Kong will be allowed as a credit against tax payable on the same income in Latvia.
Under the new agreement, Latvia’s withholding tax rate on royalties (currently at various rates, which can be as high as 23 percent in some cases) will be reduced to zero percent for companies and capped at three percent in all other cases. Latvia’s withholding tax rate on dividends and interest (which can be as high as 30 percent in some cases) will also be reduced to zero percent for companies and capped at 10 percent in all other cases.
Hong Kong airlines operating flights to Latvia will be taxed at Hong Kong’s corporation tax rate, and will not be taxed in Latvia. Profits from international shipping transport earned by Hong Kong residents that arise in Latvia, which are currently subject to tax there, will not be taxed in Latvia under the CDTA.
The Hong Kong/Latvia CDTA has also incorporated an article in line with international standards on the exchange of information in tax matters.
The agreement will come into force after the completion of ratification procedures on both sides.
Source: Tax News