HK seeks tax relief for cross-border firms

Hong Kong is seeking a comprehensive double taxation treaty with the mainland that will reduce the tax burden for many companies with cross-border operations, but could also open the way for both governments to share tax data.

Officials from the Inland Revenue Department will meet their mainland counterparts on September 5 for three days of preliminary discussions aimed at expanding and updating double taxation relief measures that have been in place since 1998, Secretary for Financial Services and the Treasury Frederick Ma Si-hang confirmed yesterday.

Mr Ma argued that the existing measures were too narrow for the current business environment.

'The negotiations will expand the scope of the agreement to save Hong Kong and mainland companies' cross-border operations from double taxation,' he said in a speech to the Hong Kong Federation of Industries. 'With Hong Kong and China developing a closer economic relationship, we have to expand the scope of the original agreement.

'This will ensure Hong Kong's competitiveness and encourage more international investors to use Hong Kong as a springboard for their China investments.'

The 1998 agreement applies primarily to Hong Kong companies with factories across the border, allowing them to split their profits tax 50-50 between Hong Kong and the mainland. The agreement signed seven years ago also allows individuals to avoid double tax.

However, it contains no provisions for service-sector firms, which Hong Kong investors are establishing with increasing frequency on the mainland, or the treatment of withholding taxes relating to royalty payments, interest and dividends.