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.

Taxes Covered

The treaty covers Estonian income tax and covers Hong Kong profits tax, salaries tax, and property tax.

Service PE

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.

Withholding Tax Rates

• Dividends - 0% if the beneficial owner is a company; otherwise, 10%
• Interest - 0% if the beneficial owner is a company; otherwise, 10%
• Royalties - 5%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

• Gains from the alienation of immovable property situated in the other Party;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
• Gains from the alienation of shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more than 50% of their value directly or indirectly from immovable property situated in the other Party, with an exemption for gains from the alienation of shares quoted on a stock exchange of:
  • a member state of the Organisation for Economic Co-operation and Development;
  • a member state of the European Economic Area;
  • the Hong Kong Special Administrative Region;
  • any other jurisdiction as may be agreed between the competent authorities of the Contracting Parties.

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Double Taxation Relief

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).

Entitlement to Benefits

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.

Effective Date

The treaty applies in Estonia from 1 January 2020 and applies in Hong Kong from 1 April 2020.