Hong Kong and South Korea sign tentative deal to fight tax cheats
Hong Kong and South Korea signed a tentative tax deal which allows Seoul to obtain information on suspected Korean tax evaders, South Korea’s finance ministry announced.
Hong Kong’s Financial Services and Treasury Bureau confirmed with the South China Morning Post today that it had completed negotiations for a comprehensive double taxation agreement (CDTA) with South Korea.
Under the deal, the South Korean government will have access to information held by Hong Kong’s financial agencies on Korean citizens suspected of tax evasion, Seoul’s Ministry of Strategy and Finance explained.
Seoul also will be able to ask Hong Kong banks to provide past tax information on suspected Korean tax cheats, including taxes on real estate transactions.
In addition, Korea’s National Tax Service will impose a tax rate of 10 per cent on income from investments made by Hongkongers in Korea, the ministry added. To prevent double taxation, Hong Kong’s Inland Revenue Department will then deduct the amount of income tax the investors paid in South Korea.
The deal, signed provisionally in Hong Kong last Friday, comes after three rounds of negotiations between Hong Kong and South Korean tax officials.
The first round started in November 2010, ten months after Hong Kong revised its law on the exchange of tax information to comply with the minimum standard of the Organisation for Economic Co-operation and Development.
More details on the treaty will be publicised after the two sides ratify the agreement, said Hong Kong’s financial services bureau.
The treaty could take effect as early as next year, South Korea’s finance ministry said.
Hong Kong signs CDTAs with its “major trading and investment partners to minimise the incidence of double taxation, thus reducing tax burdens on individuals and enterprises,” the bureau told SCMP. So far, Hong Kong has signed 29 CDTAs, nearly half of which are with the city’s top trading partners.
Last year, South Korea was Hong Kong’s No 6 trading partner, with bilateral trade reaching HK$212 billion, data from the city’s trade department revealed.
The Chinese territory remains a popular destination for wealthy South Koreans who want to evade tax payments through various ways, including opening paper companies and offshore accounts, laundering money and taking part in illegal foreign exchange trade.
In 2011, South Korean authorities recorded 44 cases of Hong Kong-related currency crimes collectively worth 1.77 trillion won (HK$12.6 billion), up 267 per cent from the year before, according to the Korea Customs Service.
Seoul has recently toughened its surveillance on Koreans’ overseas accounts to combat tax cheats and increase government revenue for the nation’s welfare programmes.
Starting next year, all Koreans with more than 1 billion won (HK$7.1 million) in overseas accounts will be required to report their offshore assets and the source of their money, the finance ministry announced last month.