Benefits for Asian investors

On 10 December 2003, Belgium and Hong Kong signed a comprehensive double taxation treaty (DTT), which came into force in Belgium on 1 January 2004 and in Hong Kong on 1 April 2004. The new DTT:

• is the first OECD DTT Hong Kong has entered into (as it is excluded from coverage under China’s existing treaties)
• is the first DTT entered into by an EU Member State, hence, to a certain extent, extending the EU Parent-Subsidiary witholding tax (WHT) exemption to a non-EU jurisdiction

Investing through a Belgian-HK structure therefore offers a number of tax-efficient inbound and outbound opportunities between East and West.

Benefits 

• A 0% withholding tax on dividends when the shareholder has a holding of at least 25% in the capital of the distributing company for an uninterrupted period of at least one year. This allows tax-efficient profit repatriation from the EU, via Belgium, to Asia, via HK. HK does not impose any local WHT on dividend distributions to non-residents
• A properly implemented HK branch structure allows Belgian companies to repatriate HK branch profits without corporate tax liability in Belgium
• The 5% royalty withholding tax rate allows tax-efficient foreign tax credit planning for a Belgian licensor that has no tax losses 
• There is no specific “limitation on benefits” provision, so other countries can effectively take advantage of treaty concessions by investing through a properly implemented HK/Belgian holding company structure 
• The treaty applies to “residents” of each jurisdiction, even though HK has an offshore tax regime.
• A Belgian-HK structure allows companies to get around the 10% Chinese capital gains taxation

Belgian-Asian inbound/outbound tax planning opportunities 

Given Belgium’s extensive tax treaty network and participation exemption regime, various tax planning ideas can be explored. For example: