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Principal Tax Contacts
Nonfinancial Services
David Chan, +852 2629-3228 Leader for Hong Kong and Mobile: +852 9121-2082 Macau China Mobile: +86 (159) 2075-1347 Email: david.chan@hk.ey.com
Financial Services
Paul Ho +852 2849-9564 Email: paul.ho@hk.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Financial Services
Cindy Li +852 2629-3608 Email: cindy.jy.li@hk.ey.com
Adam Bryan Williams +852 2849-9589 Email: adam-b.williams@hk.ey.com
Nonfinancial Services
Jo An Yee +852 2846-9710 Email: jo-an.yee@hk.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Financial Services
Rohit Narula +852 2629-3549 Email: rohit.narula@hk.ey.com
Nonfinancial Services
David Chan +852 2629-3228 Mobile: +852 9121-2082 China Mobile: +86 (159) 2075-1347 Email: david.chan@hk.ey.com
Jane Hui +852 2629-3836 Mobile: +852 9157-2100 Email: jane.hui@hk.ey.com
Eric Lam +852 2846-9946 Email: eric-yh.lam@hk.ey.com
Qiannan Lu +852 2675-2922 Email: qiannan.lu@hk.ey.com
International Tax and Transaction Services – Global Tax Desk Network
Ashley Fedyshyn, United States +852 2629-3195 Email: ashley.fedyshyn1@hk.ey.com
Joost Huisman, Netherlands/Europe +852 2629-3977 Email: joost.huisman@hk.ey.com Kevin Hughes, United States +852 2515-4107 Email: kevin.m.hughes@hk.ey.com
Jeremy F. Litton, United States +852 3471-2783 and Head of Global Tax Desk
Email: jeremy.litton@hk.ey.com Network, EY APAC
Lilian L. Liu, United States
+852 2629-3896
Email: lilian.l.liu@hk.ey.com
Rebecca Liu, United States +852 2846-9613
Email: rebecca.liu1@hk.ey.com
Peggy Lok, United States +852 2629-3866
Email: peggy.lok@hk.ey.com
Helen L. Rice, Asia-Pacific Global +852 2629-1910
Incentives, Innovation and
Email: helen.l.rice@hk.ey.com Location Services Co-Leader
Bas Sijmons, Netherlands
+852 2846-9704
Email: bas.sijmons1@hk.ey.com
Winona W. Zhao, United States +852 2515-4148
Email: winona.zhao1@hk.ey.com
International Tax and Transaction Services – Operating Model Effectiveness
Edvard Rinck +852 2675-2834
Email: edvard.rinck@hk.ey.com
International Tax and Transaction Services – Transfer Pricing
Financial Services
Justin Kyte
Nonfinancial Services
Sangeeth Aiyappa
+852 2629-3880
Email: justin.kyte@hk.ey.com
+852 2629-3989
Email: sangeeth.aiyappa@hk.ey.com
Martin Richter +852 2629-3938
Mobile: +852 9666-1408
Email: martin.richter@hk.ey.com
Kenny Wei +852 2629-3941
Mobile: +852 9042-2695
Email: kenny.wei@hk.ey.com
Business Tax Services
Financial Services
Paul Ho +852 2849-9564
Email: paul.ho@hk.ey.com
Anish Benara +852 2629-3293
Email: anish.benara@hk.ey.com
Nonfinancial Services
Wilson Cheng +852 2846-9066
Mobile: +852 9218-2572
Email: wilson.cheng@hk.ey.com
Sam Fan +852 2849-9278
Email: sam.fan@hk.ey.com
Tracy Ho +852 2846-9065
Mobile: +852 9135-6969
Email: tracy.ho@hk.ey.com
Ada Ma +852 2849-9391
Email: ada.ma@hk.ey.com
Karina Wong +852 2849-9175
Tax Policy
Becky Lai,
Leader for Greater China
Email: karina.wong@hk.ey.com
+852 2629-3188
Mobile: +852 6111-7479
China Mobile: +86 (159) 2075-1660
Email: becky.lai@hk.ey.com
Tax Controversy
Wilson Cheng
Tax and Finance Operate
Albert Lee
+852 2846-9066
Mobile: +852 9218-2572 Email: wilson.cheng@hk.ey.com
+852 2629-3318 Email: albert.lee@hk.ey.com
Robert Hardesty +852 2629-3291 Email: robert.hardesty@hk.ey.com
Tax Technology and Transformation
Albert Lee, Global Tax +852 2629-3318 Technology and Email: albert.lee@hk.ey.com Transformation Co-Leader and Asia-Pacific Tax Technology and Transformation Leader
Robert Hardesty
Global Compliance and Reporting
Financial Services
+852 2629-3291 Email: robert.hardesty@hk.ey.com
Sunny Liu +852 2846-9883 Email: sunny.liu@hk.ey.com Michael Stenske +852 2629-3058 Email: michael.stenske@hk.ey.com
Nonfinancial Services
Ivan Chan
+852 2629-3828 Mobile: +852 6118-2541 China Mobile: +86 (139) 1721-8182 Email: ivan.chan@hk.ey.com
Lorraine Cheung +852 2849-9356 Mobile: +852 9027-6907 Email: lorraine.cheung@hk.ey.com May Leung +852 2629-3089 Email: may.leung@hk.ey.com
Carol Liu +852 2629-3788 Email: carol.liu@hk.ey.com Grace Tang +852 2846-9889 Mobile: +852 9337-2231 Email: grace.tang@hk.ey.com
People Advisory Services
Paul Wen
Indirect Tax
Tracey Kuuskoski
+852 2629-3876 Mobile: +852 9883-2359 Email: paul.wen@hk.ey.com
+852 2675-2842 Email: tracey.kuuskoski@hk.ey.com
Royalties from Patents, Know-how, etc.
Paid to Corporations
Individuals
(a) See Section B for the two-tier profits tax rates regime.
(b) If the nonresident corporation is eligible for the two-tier profits tax rates regime referred to in Section B, the withholding tax rate is 2.475% (for the first HKD2 million of its royalty income) and 4.95% (for the remainder of its royalty income). However, if a recipient of payments is an associate of the payer and if the intellectual property rights were previously owned by a Hong Kong taxpayer, a withholding tax rate of 16.5% applies (subject to the appli cation of the two-tier profits tax rates regime referred to in Section B). If the nonresident is an individual eligible for the two-tier profits tax rates regime referred to in Section B, the withholding tax rate is 2.25% (for the first HKD2 million of his or her royalty income) and 4.5% (for the remainder of his or her royalty income). However, if a recipient of payments is an associate of the payer and if the intellectual property rights were previously owned by a Hong Kong taxpayer, a withholding tax rate of 15% applies (subject to the application of the two-tier profits tax rates regime referred to in Section B).
B. Taxes on corporate income and gains
Profits tax. Companies carrying on a trade, profession or busi ness in Hong Kong are subject to profits tax on profits arising in or derived from Hong Kong. However, certain royalties received from a Hong Kong payer by a foreign entity that does not other wise carry on a trade, profession or business in Hong Kong are liable to a withholding tax in Hong Kong (see Section A).
The basis of taxation in Hong Kong is territorial. The determina tion of the source of profits or income can be extremely compli cated and often involves uncertainty. It requires case-by-case consideration. To obtain certainty concerning this and other tax issues, taxpayers may apply to the Inland Revenue for advance rulings on the tax implications of a transaction, subject to pay ment of certain fees and compliance with other procedures.
Rates of profits tax. The normal profits tax rates applicable to corporations and non-corporate entities are 16.5% and 15%, respectively. If a taxpayer is eligible for the two-tier profits tax rates regime, profits tax rates for the first HKD2 million of prof its are reduced by 50% to 8.25% or 7.5%. The remainder of the profits continue to be taxed at the normal profits tax rates of 16.5% or 15%.
However, each group of “connected entities” can only elect one entity in the group to benefit from the two-tier regime for a given fiscal year. In general, two entities are regarded as “connected entities” if one entity has control over the other or both are under the control of a third entity. “Control” generally refers to one entity holding directly or indirectly more than 50% of the issued share capital, voting rights, capital or profits of another entity.
Tax incentives. The following tax incentives and enhanced deductions are available in Hong Kong:
• Interest income and trading profits derived by corporations from qualifying debt instruments (QDIs) issued prior to 1 April 2018 with a maturity period of less than seven years are taxed at a rate of 8.25% (50% of the normal profits tax rate), while
interest income and trading profits derived from those QDIs with a maturity period of seven years or longer are exempt from tax. Interest income and trading profits derived from QDIs issued on or after 1 April 2018 of any duration are exempt from tax.
• Income derived from the business of reinsurance by profes sional reinsurers that have made an irrevocable election is taxed at a rate of 8.25%.
• Income derived from the business of insurance by authorized captive insurers that have made an irrevocable election is taxed at a rate of 8.25%.
• Profits derived by authorized and certain bona fide widely held mutual funds, collective-investment schemes and unit trusts are exempt from tax.
• Profits derived from qualifying corporate treasury activities by qualifying corporate treasury centers that have made an irrevocable election are taxed at a rate of 8.25%.
• Profits of qualifying aircraft lessors and qualifying aircraft leasing managers that have made an irrevocable election are taxed at the concessionary tax rate of 8.25%. In addition, instead of tax depreciation allowances, the deemed taxable amount with respect to income derived from the leasing of air craft to an aircraft operator by a qualifying aircraft lessor equals 20% of the tax base of the lessor concerned (that is, their gross rentals less deductible expenses, but excluding tax depreciation allowances).
• Profits derived from a qualifying ship leasing activity, regard ing both an operating lease and a finance lease, including a sale and leaseback arrangement, derived by a qualifying ship lessor that has made an irrevocable election, are taxed at 0%. The tax base of such a ship owner-cum-lessor (a taxpayer that is both an owner and lessor of the ship) is 20% of its gross rentals, less deductible expenses, excluding book depreciation charges or tax depreciation allowances pertaining to a ship.
• Profits derived from a qualifying ship leasing management activity by a qualifying ship leasing manager that has made an irrevocable election and received from a non-associated quali fying ship lessor are taxed at the concessionary tax rate of 8.25%. The tax rate is reduced to 0% if the qualifying ship lessor is an associated corporation.
• Profits derived from general insurance, other than profits from certain local demand-driven insurance business, and general reinsurance business, by a specified insurer that has made an irrevocable election are taxed at a rate of 8.25%. In addition, profits of a licensed insurance broker that has made an irrevo cable election and relate to a contract of insurance effected by a professional reinsurer or a specified insurer in the course of the insurer carrying on a business that is eligible for the conces sionary tax rate are taxed at a rate of 8.25%.
• Eligible carried interest received by, or accrued to, a qualifying person from the provision of investment management services in Hong Kong to a qualifying payer is, subject to certain condi tions, taxed at 0%. Such conditions include the eligible carried interest arising from profits earned from in-scope transactions of the qualifying payer and the qualifying payer meeting the substantial activities requirements in Hong Kong.
Qualifying research and development (R&D) expenditure incurred on or after 1 April 2018 is eligible for enhanced tax deductions; the first HKD2 million is eligible for a 300% deduc tion and the remainder, not subject to any cap, is deductible at 200%. R&D expenditure that does not qualify for the enhanced deductions is eligible for the normal 100% tax deduction subject to fulfillment of the specified conditions.
Tax exemptions for all funds operating in Hong Kong. Subject to certain specified conditions, an entity that meets the definition of a “fund” as being a collective-investment scheme, regardless of its size, type and place of residence, is eligible for a tax exemp tion for its profits generated from transactions in qualifying assets and transactions incidental to such transactions.
Related anti-avoidance measures provide that, under certain cir cumstances, a resident investor in an exempt fund is deemed to derive a portion of the exempt income of the fund and is subject to tax in Hong Kong on such income, regardless of whether the fund makes an actual distribution.
Tax exemption for nonresident funds. Nonresident persons, not qualifying as a “fund,” as defined, and not eligible for the above tax exemption, are nonetheless exempt from tax in Hong Kong if their activities in Hong Kong are restricted to certain specified transactions and to transactions incidental to such transactions.
An entity is regarded as a nonresident if its place of central man agement and control is located outside Hong Kong. Specified transactions are broadly defined to cover most types of transac tions typically carried out by investment funds, such as transac tions involving securities (for unlisted securities, the exemption is subject to certain specified conditions), future and currency contracts, commodities and the making of deposits other than by money-lending businesses.
Anti-avoidance measures provide that under certain circumstances, a resident investor in an exempt nonresident fund is deemed to derive a portion of the exempt income of the fund and is subject to tax in Hong Kong on such income, regardless of whether the fund makes an actual distribution.
Capital gains. Capital gains are not taxed, and capital losses are not deductible for profits tax purposes.
Administration. A fiscal year runs from 1 April to 31 March. If an accounting period does not coincide with a fiscal year, the profit for the accounting period is deemed to be the profit for the fiscal year in which the period ends. Special rules govern commencements and cessations of businesses and deal with account ing periods of shorter or longer duration than 12 months.
Companies generally make two payments of profits tax during a fiscal year. The first payment consists of 75% of the provisional tax for the current year plus 100% of the final payment for the preceding year. The second payment equals 25% of the provi sional tax for the current year. The timing of payments is deter mined by assessment notices rather than by set dates, generally during November to April of the fiscal year.
Dividends. Hong Kong does not impose withholding tax on divi dends paid to domestic or foreign shareholders. In addition, dividends received from foreign companies are not taxable in Hong Kong.
Foreign tax relief. In certain circumstances, a deduction is allowed for foreign taxes paid. A foreign tax credit is available under the full comprehensive double tax treaties entered into between Hong Kong and other jurisdictions. However, the amount of the credit may not exceed the amount of tax payable under the Hong Kong tax laws with respect to the relevant item of income. For details concerning Hong Kong’s double tax treaties, see Section E.
C. Determination of assessable profits
General. The assessment is based on accounts prepared on generally accepted accounting principles, subject to certain statutory tax adjustments.
In general, interest income earned on deposits with financial institutions is exempt from profits tax. However, this exemption does not apply if the recipient of the interest is a financial institu tion or if the deposits are used as security for borrowings and the interest expense with respect to the borrowings is claimed as a tax deduction.
Expenses must be incurred in the production of chargeable profits. Certain specified expenses are not allowed, including domestic and private expenses, capital expenditures, the cost of improvements, sums recoverable under insurance and tax payments. The deduct ibility of interest is subject to restrictions (see Section D).
Inventories. Stock is normally valued at the lower of cost and net realizable value. Cost must be determined using the first-in, firstout (FIFO) method or an average cost, standard cost or adjusted selling price basis. The last-in, first-out (LIFO) method is not ac ceptable. However, this may not apply to shares and securities held for trading purposes.
Capital allowances
Industrial buildings. An initial allowance of 20% is granted on new industrial buildings in the year in which the expenditure is incurred, and annual depreciation allowances are 4% of qualify ing capital expenditure beginning in the year the building is first put into use. No initial allowance is granted on the purchase of used buildings, but annual depreciation allowances may be avail able. Subject to certain exceptions, buildings used for the pur poses of a qualifying trade are industrial buildings.
Commercial buildings. An annual allowance (4% of qualifying capital expenditure each year) is available on commercial build ings. Buildings that do not qualify as industrial buildings are commercial buildings. Refurbishment costs for premises, other than those used as domestic dwellings, may be deducted in equal amounts over a five-year period.
Prescribed plant and machinery. Subject to satisfying certain conditions, companies may immediately write off 100% of expen diture on manufacturing plant and machinery and on computer software and hardware.
Environmental protection facilities. Subject to satisfying certain conditions, capital expenditure incurred on eligible environmental protection installation forming part of a building or structure, environmental protection machinery and environmentally friend ly vehicles qualifies for a 100% write-off in the year in which the expenditure is incurred.
Other plant and machinery, and office equipment. An initial allow ance of 60% is granted for non-manufacturing plant and machin ery, and office equipment in the year of purchase. An annual allowance of 10%, 20% or 30% under the declining-balance method is available on the balance of the expenditure beginning in the year the asset is first used in the business. Consequently, the total allowances (initial and annual) in the first year can be 64%, 68% or 72%.
Motor vehicles. An initial allowance of 60% is granted for motor vehicles in the year of purchase. An annual allowance of 30% under the pooling system (declining-balance method) is allowed on the balance of the expenditure beginning in the year the asset is first used in the business.
Intellectual property rights. Subject to certain anti-avoidance pro visions, capital expenditure incurred on the purchase of patents, industrial know-how, registered trademarks, copyrights, regis tered designs, rights in layout design (topography) of integrated circuits, plant varieties and performances qualifies for tax amor tization over a time period ranging from one to five years.
Recapture. Depreciation allowances are generally subject to recapture if the proceeds from the sale of a depreciable asset exceed its tax-depreciated value. The recapture rule also applies to prescribed plant and machinery (manufacturing plant and machinery and computer hardware and software) and environmental protection installation and machinery, and environmentally friendly vehicles that were previously written off in full. Consequently, in the year of disposal, the sales proceeds from the abovementioned assets generally are included in chargeable profits, up to the original costs of the assets. Allowances for commercial and industrial buildings may be recaptured, up to their original costs. Assets depreciable under the pooling system (declining-balance method) are allocated to one of three pools according to their depreciation rates, which are 10%, 20% or 30%. Proceeds from the sale of an asset in a pool (up to the cost of the asset) are deducted from the pool balance. If a negative balance results within the pool, a balancing charge is added to taxable profits.
Relief for business losses. Losses incurred in a year can be carried forward indefinitely and set off against the profits of the com pany in subsequent years. No carryback is possible. Certain rules prevent trafficking in loss companies. In addition, specific rules govern the offset of normal business losses against concessionary trading receipts (that is, those taxed at concessionary rates instead of the full normal rates) and vice versa.
Groups of companies. Consolidated filing is not permitted. Hong Kong does not provide group relief for tax losses.
D. Miscellaneous matters
Mergers and reorganizations. When considering an acquisition in Hong Kong, a company must first decide whether to acquire the shares or the assets of the target company. Unlike some other jurisdictions, the Hong Kong tax code does not allow a step-up in tax basis of the underlying assets if shares are acquired. The tar get company retains the same tax basis for its assets, regardless of the price paid for the shares.
Effective from 3 March 2014, the new Companies Ordinance (Cap 622) introduced measures to facilitate an amalgamation of two or more wholly owned companies within a group without the need to seek approval from the court. A new law was enacted in June 2021 to set out the specific tax treatment applicable to a qualifying amalgamation (that is, an amalgamation undertaken pursuant to the Companies Ordinance). Under the new law, on election by the taxpayer, the transfer of assets from an amalgamating company to the amalgamated company (that is, the surviving entity) is generally treated as being made at book value and, therefore, tax neutral. The amalgamated company is entitled to continue to claim tax deductions or allowances with respect to the unrelieved tax costs of the assets transferred or succeeded from the amalgamating company. In addition, the new law also specifies the restrictive conditions under which preamalgamation tax losses sustained by the amalgamating and amalgamated companies can be utilized post-amalgamation.
Anti-avoidance legislation. Transactions that are artificial, ficti tious or predominantly tax-driven may be disregarded under gen eral anti-avoidance tax measures. In addition, specific measures deny the carryforward of tax losses if the dominant reason for a change in shareholding of a corporation is the intention to use the tax losses. Other specific anti-avoidance measures include those designed to counteract certain leverage and cross-border leasing, non-arm’s-length transactions between a Hong Kong resident com pany and its foreign affiliates and the use of personal service companies to disguise employer-employee relationships.
Transfer pricing. Under the specific transfer-pricing legislation (TP law), transactions between connected persons (including those between different parts of the same enterprise located in different jurisdictions) are required to be priced and conducted on an arm’slength basis. Certain specified domestic transactions that do not result in any actual tax difference or meet the non-business loan condition are specifically exempt from the TP law, provided that certain prescribed conditions are met.
The transfer-pricing guidelines of the Organisation for Economic Co-operation and Development (OECD) provide guidance on how the TP law should be interpreted.
TP documentation requirements. The TP law also adopts the three-tier documentation approach as recommended by the OECD for related-party transactions, which is comprised of the following:
Local File
Master File
Country-by-Country
A Hong Kong entity of a group is required to prepare and retain the entity’s Local File and a Master File of its group with respect to an accounting period unless either of the following circum stances exists:
• Any two of the following conditions are satisfied:
— The total amount of the entity’s revenue for the accounting period does not exceed HKD400 million.
— The total value of the entity’s assets at the end of the accounting period does not exceed HKD300 million.
— The average number of the entity’s employees during the accounting period does not exceed 100.
• All the following conditions are satisfied with respect to the following categories of transactions between connected persons (excluding specified domestic transactions) undertaken by the entity in an accounting period:
— The total amount of transfers of properties (excluding financial assets and intangibles) does not exceed HKD220 mil lion.
— The total amount of transactions with respect to financial assets does not exceed HKD110 million.
— The total amount of transfers of intangibles does not exceed HKD110 million.
— The total amount of other transactions does not exceed HKD44 million.
If all of the conditions stated in the second bullet above are not satisfied, the entity is required to prepare a Local File with respect to the particular category or categories of transactions that exceeded the threshold(s) specified above. In addition, the entity is not exempt from preparing the Master File.
Unless exempted, effective from the accounting period beginning on or after 1 April 2018, the Master File and Local File must be prepared within nine months after the end of the relevant account ing period. Although the Master File and Local File are not required to be submitted together with the annual tax return, they must be produced for examination on request and retained for a period of not less than seven years after the end of the accounting period.
Country-by-Country Reporting. The CbC Report filing threshold is set in accordance with the OECD recommendation; that is, con solidated turnover exceeding EUR750 million (HKD6.8 billion) in the preceding year.
The primary obligation for CbC Report filing falls on the Ultimate Parent Entities (UPEs) of multinational groups that are resident in Hong Kong. A CbC Report must be prepared for each accounting period beginning on or after 1 January 2018. The information to be included in the CbC Report is in line with the OECD’s require ments. A Hong Kong enterprise that is a constituent entity of a CbC Reporting group must file a notification with the IRD within three months after the end of the accounting period to which its UPE’s CbC Report relates. This notification must contain sufficient infor mation for Hong Kong to obtain the CbC Report directly from the jurisdiction in which the Hong Kong taxpayer’s UPE or Surrogate Parent Entity has filed the CbC Report under the automatic exchange of information mechanisms for the exchange of CbC
Reports. The deadline for filing a CbC Report is 12 months after the end of the relevant accounting period or the date specified in the assessor’s notice, whichever is earlier.
Foreign-exchange controls. Hong Kong does not impose foreignexchange controls.
Islamic bonds. A special legislative framework provides compa rable tax treatment in terms of stamp duty, profits tax and prop erty tax for some common types of Islamic bonds (sukuk), vis-à-vis conventional bonds. However, no special tax incentives are conferred on Islamic bonds.
Interest expense. In an attempt to combat avoidance, restrictions are placed on the deductibility of interest expense. In general, subject to certain specific anti-avoidance rules, interest on mon ies borrowed is deductible for tax purposes if it is incurred in the production of chargeable profits in Hong Kong and if one of the following additional conditions is satisfied:
• The recipient is taxable in Hong Kong on the interest.
• The interest is paid to a recognized financial institution in Hong Kong or overseas.
• The interest is paid with respect to debt instruments that are listed or marketed in Hong Kong or in a recognized overseas market.
• The interest is paid with respect to money that is borrowed from an unrelated person and that is wholly used to finance capital expenditures on plant and machinery qualifying for capital allowances or the purchase of trading stock.
• The interest is paid by a corporation in the ordinary course of its intragroup financing business to its overseas associated corporations, and such overseas corporations are subject to tax over seas with respect to the interest received at a rate of not less than the applicable reference rate (that is, 16.5% or 8.25% as the case may be).
Subject to certain provisions, distributions made with respect to the following are treated as interest expenses and are tax-deductible:
• Regulatory capital securities (covering Additional Tier 1 instru ments and Tier 2 instruments) issued by financial institutions in compliance with the relevant banking capital adequacy require ments
• Loss-absorbing capacity (LAC) instruments, other than com mon equity, issued by financial institutions and their relevant group companies to meet the relevant minimum LAC require ments
Reversion of sovereignty to China. Since 1 July 1997, Hong Kong has been a Special Administrative Region (SAR) of China under Article 31 of the constitution of China. However, as an SAR, Hong Kong has a tax system that is based on common law and distinct from the system used in Mainland China.
In addition, on its own, Hong Kong, using the name “Hong Kong, China,” may maintain and develop relations, and may conclude and implement agreements, with foreign states and regions and relevant international organizations in such fields as economics,
trade, finance, shipping, communications, tourism, culture and sports.
E. Tax treaties
Both the Hong Kong and Mainland China tax authorities take the view that Mainland China’s tax treaties with other jurisdictions do not cover Hong Kong.
For the avoidance of double taxation on shipping income, Hong Kong has entered into agreements with Denmark, Germany, Norway, Singapore, Sri Lanka and the United States. These agree ments generally provide for tax exemption in one territory for profits and capital gains derived by an enterprise of the other territory in the first-mentioned territory with respect to the opera tion of ships in international traffic. However, under the agreement between Hong Kong and Sri Lanka, 50% of the profits derived from the operation of ships in international traffic may be taxed in the source jurisdiction. Furthermore, in October 2020, the United States announced the termination of the shipping income agreement with Hong Kong with effect from 1 January 2021. Apart from the above agreements, reciprocal exemption provisions with the tax authorities of Chile, Korea (South) and New Zealand have also been confirmed.
Hong Kong has signed double tax agreements relating to airline profits with several jurisdictions, including Bangladesh, Croatia, Denmark, Estonia, Ethiopia, Fiji, Finland, Germany, Iceland, Israel, Jordan, Kenya, Laos, the Macau SAR, Maldives, Mauritius, Norway, Seychelles, Singapore, Sri Lanka and Sweden. Under these agreements, international transport income of Hong Kong airlines is exempt from tax in these signatory jurisdictions. However, international transport income of Hong Kong airlines that is exempt from tax overseas under these agreements or under relevant full comprehensive double tax treaties is taxed in Hong Kong.
Hong Kong has also entered into full comprehensive double tax treaties modeled on the conventional tax treaty adopted by the OECD, with the jurisdictions listed in the table below. The table shows the withholding tax rates for dividends, interest and royal ties paid from Hong Kong to residents of the treaty jurisdictions. The rates shown in the table are the lower of the treaty rates and the applicable rates under Hong Kong domestic law.
Dividends Interest Royalties
Austria
Belarus
Belgium
Brunei Darussalam
Cambodia
Canada
China Mainland
Czech Republic
Estonia
Finland
0 3
0 3/4.95 (c)
0 4.5/4.95 (a)
4.5/4.95 (a)
4.5/4.95 (a)
0 4.5/4.95 (a)
4.5/4.95 (a)
4.5/4.95 (a)
4.5/4.95 (a)
3
Dividends Interest Royalties % % %
France 0 0 4.5/4.95 (a)
Georgia 0 0 4.5/4.95 (a)
Guernsey 0 0 4
Hungary 0 0 4.5/4.95 (a)
India 0 0 4.5/4.95 (a)
Indonesia 0 0 4.5/4.95 (a)
Ireland 0 0 3
Italy 0 0 4.5/4.95 (a)
Japan 0 0 4.5/4.95 (a)
Jersey 0 0 4
Korea (South) 0 0 4.5/4.95 (a)
Kuwait 0 0 4.5/4.95 (a)
Latvia 0 0 0/3 (b)
Liechtenstein 0 0 3
Luxembourg 0 0 3
Macau SAR 0 0 3
Malaysia 0 0 4.5/4.95 (a)
Malta 0 0 3
Mexico 0 0 4.5/4.95 (a)
Netherlands 0 0 3
New Zealand 0 0 4.5/4.95 (a)
Pakistan 0 0 4.5/4.95 (a)
Portugal 0 0 4.5/4.95 (a)
Qatar 0 0 4.5/4.95 (a)
Romania 0 0 3
Russian Federation 0 0 3
Saudi Arabia 0 0 4.5/4.95 (a)
Serbia 0 0 4.5/4.95 (a)
South Africa 0 0 4.5/4.95 (a)
Spain 0 0 4.5/4.95 (a)
Switzerland 0 0 3
Thailand 0 0 4.5/4.95 (a)
United Arab Emirates 0 0 4.5/4.95 (a)
United Kingdom 0 0 3
Vietnam 0 0 4.5/4.95 (a)
Non-treaty jurisdictions 0 0 4.5/4.95 (a)
(a) The withholding rates in Hong Kong applicable to individuals and corpora tions are 4.5% and 4.95%, respectively (subject to the application of the two-tier profits tax rates regime referred to in Section B above). These rates are lower than those specified in the relevant tax treaties, and consequently, the Hong Kong domestic rates apply.
(b) The 0% rate applies if the beneficial owner of the royalties is a company (other than a partnership). In all other cases, the 3% rate applies.
(c) The 3% rate applies to payments for the use of, or the right to use, aircraft. The 4.95% rate applies in all other cases.