Hong Kong Signs Double Tax Agreements With UK, Ireland
Hong Kong has signed comprehensive agreements for the avoidance of double taxation (DTAs) with the United Kingdom and Ireland, on June 21 in London and June 22 in Dublin, respectively.
The comprehensive DTAs with the UK and Ireland, signed by Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, together with the UK’s Exchequer Secretary to the Treasury, David Gauke, and the Irish Minister of Finance, Brian Lenihan, are the 12th and 13th such agreements Hong Kong has signed with its trading partners.
The DTAs generally follow the Organisation for Economic Co-operation and Development (OECD) Model Double Taxation Convention, and set out clearly the allocation of taxing rights between the jurisdictions and the relief on tax rates on different types of passive income, including capital gains.
In the absence of the DTAs, profits earned by British and Irish residents in Hong Kong are subject to both Hong Kong and UK or Irish income tax. Profits of British and Irish companies doing business through a branch in Hong Kong are fully taxed in both places. Under the agreements, the UK and Ireland will provide tax credits to their residents and companies against UK and Irish tax payable in respect of that income.
Hong Kong residents currently receiving dividends from the UK and Ireland are subject to a withholding tax, which is currently at 20% in both jurisdictions. Under the agreement, this withholding tax rate will be reduced to 15% in the UK and exempted in Ireland.
Also, Hong Kong residents receiving royalties and interest from the UK are subject to a current withholding tax rate of 20% in the UK and Ireland. Under both agreements, the withholding tax rate on royalties will be capped at 3%. The withholding tax on interest will be reduced to 10% in Ireland, whereas it will be exempted in the UK, with a provision to ensure the benefits of the interest article can only flow to residents of the other state.
Upon its entry into force, the Hong Kong/UK DTA will supersede the existing limited double taxation avoidance agreements for airline income and for shipping income, respectively providing the same level of benefits.
Under the Hong Kong/Ireland DTA, Hong Kong airlines operating flights to Ireland will be taxed at Hong Kong's corporation tax rate. Profits from international shipping transport earned by Hong Kong residents that arise in Ireland, which are currently subject to tax there, will enjoy tax exemption under the agreement.
The Hong Kong/UK DTA incorporates the latest OECD standard on exchange of information, limited to taxes covered by the agreement. Such taxes are those imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property and taxes on capital appreciation.
The existing taxes to which the agreement will apply are, therefore, profits tax, salaries tax and property tax in Hong Kong; income tax, corporation tax and capital gains tax in the UK; and income tax, income levy, corporation tax and capital gains tax in Ireland.
The agreements are designed to assist investors in better assessing their potential tax liabilities from cross-border economic activities, to foster closer economic and trade links between the respective jurisdictions, and to provide added incentives for companies in the UK and Ireland to do business or invest in Hong Kong, and vice versa.
The DTAs will come into force after the completion of ratification procedures by all parties. The provisions of the agreements will then take effect from the next calendar year.
Hong Kong is actively seeking to establish a network of comprehensive DTAs. Where comprehensive DTA discussions with some jurisdictions cannot be started for the time being, Hong Kong will seek to conclude limited double taxation avoidance arrangements for airline and shipping income with relevant partners. So far, 27 such agreements on airline income, six agreements on shipping income, and two agreements on airline and shipping income have been reached.
Hong Kong has signed comprehensive agreements for the avoidance of double taxation (DTAs) with the United Kingdom and Ireland, on June 21 in London and June 22 in Dublin, respectively.
The comprehensive DTAs with the UK and Ireland, signed by Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, together with the UK’s Exchequer Secretary to the Treasury, David Gauke, and the Irish Minister of Finance, Brian Lenihan, are the 12th and 13th such agreements Hong Kong has signed with its trading partners.
The DTAs generally follow the Organisation for Economic Co-operation and Development (OECD) Model Double Taxation Convention, and set out clearly the allocation of taxing rights between the jurisdictions and the relief on tax rates on different types of passive income, including capital gains.
In the absence of the DTAs, profits earned by British and Irish residents in Hong Kong are subject to both Hong Kong and UK or Irish income tax. Profits of British and Irish companies doing business through a branch in Hong Kong are fully taxed in both places. Under the agreements, the UK and Ireland will provide tax credits to their residents and companies against UK and Irish tax payable in respect of that income.
Hong Kong residents currently receiving dividends from the UK and Ireland are subject to a withholding tax, which is currently at 20% in both jurisdictions. Under the agreement, this withholding tax rate will be reduced to 15% in the UK and exempted in Ireland.
Also, Hong Kong residents receiving royalties and interest from the UK are subject to a current withholding tax rate of 20% in the UK and Ireland. Under both agreements, the withholding tax rate on royalties will be capped at 3%. The withholding tax on interest will be reduced to 10% in Ireland, whereas it will be exempted in the UK, with a provision to ensure the benefits of the interest article can only flow to residents of the other state.
Upon its entry into force, the Hong Kong/UK DTA will supersede the existing limited double taxation avoidance agreements for airline income and for shipping income, respectively providing the same level of benefits.
Under the Hong Kong/Ireland DTA, Hong Kong airlines operating flights to Ireland will be taxed at Hong Kong's corporation tax rate. Profits from international shipping transport earned by Hong Kong residents that arise in Ireland, which are currently subject to tax there, will enjoy tax exemption under the agreement.
The Hong Kong/UK DTA incorporates the latest OECD standard on exchange of information, limited to taxes covered by the agreement. Such taxes are those imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property and taxes on capital appreciation.
The existing taxes to which the agreement will apply are, therefore, profits tax, salaries tax and property tax in Hong Kong; income tax, corporation tax and capital gains tax in the UK; and income tax, income levy, corporation tax and capital gains tax in Ireland.
The agreements are designed to assist investors in better assessing their potential tax liabilities from cross-border economic activities, to foster closer economic and trade links between the respective jurisdictions, and to provide added incentives for companies in the UK and Ireland to do business or invest in Hong Kong, and vice versa.
The DTAs will come into force after the completion of ratification procedures by all parties. The provisions of the agreements will then take effect from the next calendar year.
Hong Kong is actively seeking to establish a network of comprehensive DTAs. Where comprehensive DTA discussions with some jurisdictions cannot be started for the time being, Hong Kong will seek to conclude limited double taxation avoidance arrangements for airline and shipping income with relevant partners. So far, 27 such agreements on airline income, six agreements on shipping income, and two agreements on airline and shipping income have been reached.
