Deal sealed: Dutch Minister of Finance JC de Jager and Secretary for Financial Services & the Treasury Prof KC Chan sign the tax agreement.

Hong Kong and the Netherlands have signed a comprehensive agreement for avoidance of double taxation, which will apply to income taxes.

Secretary for Financial Services & the Treasury Professor KC Chan and Dutch Minister of Finance JC de Jager signed the agreement today, saying the move will expand mutual investments and boost economic relations between the two jurisdictions.

"I am confident the agreement will encourage greater flow of investment, technology, talent and expertise between us for the mutual benefit of both economies. The Hong Kong-Netherlands [deal] is the first agreement we concluded with an Organisation for Economic Co-operation & Development member country adopting the latest international standard on exchange of information," Professor Chan said, adding he hopes this will become an impetus for Hong Kong to expand its treaty network.

Under the agreement, withholding tax rates on passive income including dividends and royalties will be lowered. A withholding tax rate of 0%, instead of the 15% rate currently applicable in the Netherlands in the absence of the agreement, applies to dividends received by people holding at least 10% of the share capital of the paying companies, as well as dividends received by banks and insurance companies, pension funds, headquarters companies and other qualifying entities.

To other dividends, a withholding tax rate of 10% will apply. No source taxation will apply to interest payments, as there is no withholding tax for such payments in either party. For royalties, Hong Kong has agreed to limit its withholding tax to 3%.

The agreement has a provision on exchange of information relating to tax matters, according to the OECD standard. It offers an opportunity for the tax authorities of both places to consult each other to resolve disputes on the application or interpretation of the agreement. Under the deal, taxpayers can request an arbitration procedure.

It must be ratified in the Netherlands and Hong Kong before it comes into force. Click here for details.