Hong Kong Double Tax Treaties
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Hong Kong Double Tax Treaties

DeltaQuest can assist you whether you are an individual or corporate entity in setting up a Hong Kong trust or Hong Kong foundation to achieve complete and comprehensive asset protection. For more information about Hong Kong double tax treaties, please read the information below. Alternatively, to establish a Hong Kong Trust or foundation please complete our Application Form, or if you require further information please Contact Us.

To date, Hong Kong has no comprehensive double tax treaties with most countries in the world. Tax relief arrangements have been made only in respect of international shipping and aircraft income. It has been announced, however, that comprehensive double tax treaties will be negotiated and concluded with selected countries in the near future.

Double taxation arises when two or more tax jurisdictions overlap, such that the same item of income or profit is subject to tax in each. Hong Kong’s territorial source basis of taxation means that income derived by a resident from outside Hong Kong will not generally suffer double taxation in Hong Kong. Many countries which tax their residents on a world-wide basis also provide their residents operating businesses in Hong Kong with unilateral tax credit relief for Hong Kong tax paid on income derived from Hong Kong. Hong Kong tax authorities allow a deduction for foreign tax paid on turnover basis in respect of an income, which is also subject to tax in Hong Kong. Businesses operating in Hong Kong therefore do not generally have problems with double taxation of income.

Notwithstanding this, the Hong Kong Special Administrative Region Government (HKSARG) recognizes that there are merits in concluding double taxation agreements (DTAs) with trading partners. A DTA provides certainty to investors on the taxing rights of the contracting parties; helps investors to better assess their potential tax liabilities on economic activities; and provides an added incentive for overseas companies to do business in Hong Kong, and likewise, for Hong Kong companies to do business overseas. In the 1999-2000 Budget Speech, the Financial Secretary has announced, as one of the helping business initiatives, that the HKSARG should negotiate DTAs with trade and economic partners with a view to minimizing exposure of the respective residents to double taxation.

Due to the international nature of aircraft operations, airline operators are more susceptible to double taxation than other taxpayers. It has been Hong Kong’s policy to include double taxation relief arrangements for airline income in the bilateral Air Services Agreements negotiated between Hong Kong and the aviation partners. Hong Kong has reached arrangements with Bangladesh, Belgium, Canada, Croatia, Denmark, Estonia, Germany, Israel, the Republic of Korea, Macao Special Administrative Region, Mauritius, the Netherlands, New Zealand, Norway, the Russian Federation, Sweden and the United Kingdom.

Shipping income is another area of concern. Double taxation relief arrangements with the United States of America have been in place since 1987. Hong Kong had amended their legislation to provide a reciprocal tax exemption from 1 April 1998 for shipping income so that ship operators can benefit from the tax relief offered by places with similar reciprocal tax exemption legislation. In parallel, Hong Kong has entered into negotiations of double taxation relief arrangements for shipping income with other places that either do not provide reciprocal tax exemption in their legislation or, even reciprocal exemption provisions exist, prefer conclusion of a bilateral agreement. Agreements have been concluded with Germany, the Netherlands, Norway and the United Kingdom.Agreements covering both airline and shipping income have been concluded with Singapore and Sri Lanka.

Activities between the Mainland of China and the Hong Kong Special Administrative Region have increased tremendously over the recent years. Differences in the taxation system of the two places had led to instances of double taxation. With a view to minimizing the scope for double taxation, an “Arrangement for the Avoidance of Double Taxation on Income” was concluded in February 1998. The Arrangement covers:

- business profits of an enterprise which carries on business through permanent establishment;
- shipping, air and land transport;
- personal services.

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