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Interest Paid to Hong Kong

Revenue Release Updated Tax and Duty Manual

Revenue have released an updated Tax and Duty Manual which outlines the specific instances in which interest can be paid by an Irish tax resident company to a Hong Kong company free from Irish interest withholding tax. The updated manual can be accessed here. Deloitte Ireland was directly involved in liaising with Revenue in the process leading up the amendment on behalf of a client and we would be happy to answer any further queries relating to the update.

The previous Revenue position was that the exemption from interest withholding tax provided for under S.246(3)(h)(I) TCA 1997 did not extend to interest paid to Hong Kong. This was on the basis that despite Ireland and Hong Kong having entered into a Double Tax Agreement, Hong Kong was not perceived to be a jurisdiction which imposed a tax that generally applied to interest receivable in Hong Kong by companies from sources outside of Hong Kong.

The updated Tax and Duty Manual provides that where interest is paid by an Irish tax resident company in the ordinary course of a trade or business carried on by it to a company treated as resident in Hong Kong for the purposes of the Double Tax Agreement with Ireland and where such interest is subject to tax in Hong Kong at 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, then 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.

This is a welcome development from an Irish perspective and in particular for the aviation finance and leasing industry given the increasing significance of Hong Kong as an aviation finance hub.

If you have any questions on the above or would like to discuss further please do not hesitate to contact me or any member of the tax team.

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