The income tax treaty between Estonia and Hong Kong entered into force on 18 December 2019. The treaty, signed 25 September 2019, is the first of its kind between the two jurisdictions.
The treaty covers Estonian income tax and covers Hong Kong profits tax, salaries tax, and property tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting Party for a period or periods aggregating more than 183 days within any 12-month period.
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Hong Kong applies the credit method for the elimination of double taxation, while Estonia generally applies the exemption method. However, Estonia will apply the credit method in respect of income covered by Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 16 (Entertainers and Sportspersons).
Article 21 (Entitlement to Benefits) includes the provision that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.
The treaty applies in Estonia from 1 January 2020 and applies in Hong Kong from 1 April 2020.