HK signs two new tax treaties, aiming to boost trade and finance

PUBLISHED : Thursday, 20 May, 2010, 12:00am
UPDATED : Thursday, 20 May, 2010, 12:00am

Hong Kong will add France and Austria to the five countries it has full taxation agreements with, on Tuesday.

Tax specialists say that the comprehensive double taxation agreements (CDTAs) help with trade and finance, and attract professionals to work here.

The Organisation for Economic Co-operation and Development requires Hong Kong to have 12 CDTAs, adopting OECD standards on the exchange of information.

Since March, Hong Kong has signed CDTAs with Brunei, the Netherlands, Indonesia, Hungary and Kuwait. Local tax authorities have also reached agreement on CDTAs with Ireland, Japan, Switzerland and Liechtenstein, while negotiations are under way to upgrade existing treaties with the mainland, Vietnam, Belgium and Luxembourg to the OECD's newest standards.

The two new treaties are expected to bring about fresh business, trade and investment opportunities for all parties at a time when Europe is struggling to contain a massive debt crisis.

A Financial Services and the Treasury Bureau spokesman said the government was actively conducting CDTA negotiations with Hong Kong's trading partners.

'CDTAs with major economies would help reduce tax burdens on individuals and enterprises and eliminate uncertainties over tax liabilities. This would improve the business environment and facilitate flows of trade, investment and talent between Hong Kong and the rest of the world, thereby enhancing Hong Kong's position as an international business and financial centre,' the spokesman said.

Double taxation arises when two or more tax jurisdictions overlap, so that the same income or profit is subject to tax in each place. Hong Kong adopts the territorial principle of taxation, which only taxes income sourced in Hong Kong.

Income derived outside Hong Kong by a local resident is usually not subject to local taxes. This means Hong Kong residents generally are not affected by double taxation.

In Austria's case, the agreement will allow taxes paid in Hong Kong by Austrian nationals to offset their tax obligations back home in most cases, said Gerhard Maynhardt, Austrian consul general in Hong Kong and Macau. For example, Austrian nationals who are taxed on their property gains in Hong Kong would not be taxed on those profits in Austria, Maynhardt said.

Austria taxes income progressively up to 50 per cent, with middle-income earners taxed about 37 per cent on average. Hong Kong has a standard income tax rate of 15 per cent.

Agnes Chan Sui-kuen, Ernst & Young's regional managing partner for Hong Kong and Macau, said Hong Kong did not have much to offer in negotiating such treaties since dividends and capital gains were tax-free and only locally sourced income was taxed. This meant exchange of information was probably the selling point.

Reducing the burden

Taxes paid in Hong Kong by Austrian nationals may be now offset

Austria taxes income progressively up to 50 per cent, while Hong Kong has a standard income tax rate of: 15%