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Ireland-Hong Kong

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Ireland Clarifies Taxation of Interest Paid to Hong Kong

Irish revenue has issued eBrief No. 166/18 on an update to Tax and Duty Manual Part 08-03-06, which confirms that, in certain circumstances, interest paid to Hong Kong should be exempted from tax. The update concerns a restriction on exemptions for interest paid to territories that provide for a territorial system of taxation as follows:

Territorial systems – Hong Kong

Where the relevant territory provides for a territorial system of taxation, the law of the relevant territory may charge tax on income receivable by a company by reference to such income having its source in the relevant territory, rather than by treating the company as resident for tax purposes in that relevant territory. The company may be chargeable to tax on interest payments only to the extent that such interest payments are treated as derived from a source within the relevant territory. Where such a territorial system applies to the company by which interest is receivable, that interest will not be exempt from tax under section 246(3)(h)(I) TCA 1997 or section 198(1)(c)(ii)(I) TCA 1997.

However, where:

  • such interest is paid to a company treated as resident in Hong Kong for the purposes of the double tax treaty with Ireland; and
  • the interest is subject to the full rate of corporate income tax that applies in Hong Kong, on the basis that it is treated, by virtue of the law of Hong Kong, as derived from a Hong Kong source

it will be treated by Revenue as exempted:

  1. under section 246(3)(h)(I) TCA 1997, from withholding tax; and
  2. under section 198(1)(c)(ii)(I) TCA 1997, from the charge to income tax.

Where the interest is not treated as Hong Kong source income of a Hong Kong resident company it will be subject to withholding tax and chargeable to income tax.

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