Blacklisted HK: The Latvian Case

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The blacklisting of Hong Kong by the European Union is over for the moment with Spain explaining to the EU it didn’t have HK on its list. In the course of investigation, Harbour Times receives a quick response from the Latvian embassy in Beijing to clarify their stance on Hong Kong. Tax haven – but it’s not a blacklisting.


When is a blacklisting not a blacklisting? When it’s Hong Kong on the Latvian list.

Dr Roger King, Honorary Consul for Latvia in Hong Kong, was gracious enough to facilitate contact with the Latvian embassy in Beijing to seek clarification about Hong Kong’s status vis-á-vis the EU nation.


The deal

The Latvian government concluded, the first round of negotiation towards establishing a double taxation agreement (DTA) with Hong Kong, on November 21, 2013. More recently, the topic resurfaced again as the European Union included Hong Kong to its list of non-cooperative tax jurisdictions, only to withdraw it after voices were raised in Hong Kong abroad.

The EU blacklisting mechanism is that a tax jurisdiction will be named a bad boy (a ‘non-cooperative tax jurisdiction’) if 10 or more of its member states include the jurisdiction on their respective national lists of non-cooperative tax jurisdictions. As previously reported, Latvia was one of the 10 (now eight) member states alongside Bulgaria, Croatia, Estonia, Greece, Italy, Lithuania, Poland, Portugal and Spain that awarded Hong Kong the status. However, some countries claim they hadn’t blacklisted Hong Kong at all. Harbour Times seeks to clarify who has listed Hong Kong what.


The Latvian case

Harbour Times acquired a response from the Latvian Ministry of Finance (the Ministry) concerning the blacklisting. The Ministry stated that, strictly speaking, Latvia does not have a ‘blacklist’, but a “national list of low tax or no tax countries and territories is established only for the purpose of application of certain provisions of Latvia’s taxation laws” of which 48 countries or jurisdictions are now treated as “low-tax or tax-free countries and territories” – Hong Kong included.

According to Latvian regulations, the withholding tax rate on dividend income paid on Latvian securities to beneficial owners that are legal entities resident in low-tax or tax-free countries or territories stands at 15%.

The Ministry also stated that the status would no longer be applicable to Hong Kong if any legal instrument providing for the exchange of tax information is in place between the two territories.

“As soon as it [Avoidance of Double Taxation and the Prevention of Fiscal Evasion] enters into force, Hong Kong shall not be treated as no tax or low tax country as of the year, in which the respective Agreement becomes effective regarding Hong Kong,” the Ministry’s response read.

The HKSAR government is yet to make a response on when the second round of negotiations with its Latvian counterparts will commence.

Another way to get Hong Kong out of the list, as the Ministry suggested, is for Hong Kong to join the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which has been in effect in Latvia since November 1, 2014. The HKSAR Government, meanwhile, has pledged to implement the Automatic Exchange of Information (AEoI), which would provide the same effect, by the end of 2018. The draft legislation is scheduled to be tabled in the LegCo in early 2016.

Hong Kong was recently removed from the pan-EU list on Oct 12, 2015, first published in June 2015, after the European regime recognised that Spain has cleared Hong Kong from its national list since April 1, 2013, while Estonia no longer presents a national list.

Harbour Times raised the alarm after rumblings from within the business community came to our attention, driving an investigation. See our previous commentary here.