The 20th comprehensive agreement for the avoidance of double taxation (DTA) concluded by Hong Kong with its trading partners was signed on April 1 in Hong Kong by the Chief Secretary for Administration, Henry Tang, and the Spanish Second Vice-President, Elena Salgado.
Tang said that, as the DTA with Spain sets out clearly the allocation of taxing rights between the two jurisdictions and the relief on tax rates on different types of passive income, it will help investors better assess their potential tax liabilities from cross-border economic activities.
"The agreement will boost closer economic and trade ties between the two places, and provide added incentives for companies in Spain to do business or invest in Hong Kong, and vice versa," he added.
In the absence of a DTA, income earned by Spanish residents in Hong Kong are subject to both Hong Kong and Spanish income tax. Profits of Spanish companies doing business through a branch in Hong Kong are fully taxed in both places. Under the agreement, tax paid in Hong Kong will be allowed as a credit against Spanish tax payable.
Under the agreement, Hong Kong airlines operating flights to Spain will be taxed at Hong Kong's corporation tax rate (which is lower than that of Spain). Profits from international shipping transport earned by Hong Kong residents that arise in Spain, which are currently subject to tax there, will not be taxed in Spain under the agreement.
The Hong Kong/Spain DTA will also incorporate the latest Organisation for Economic Co-operation and Development standard on exchange of tax information, and will come into force after the completion of ratification procedures on both sides.
It was confirmed that Hong Kong is actively seeking to establish a network of DTAs with its major trading and investment partners. Where 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. 27 avoidance of double taxation agreements on airline income, six agreements on shipping income and two agreements on airline and shipping income have, so far, been agreed.
Tang said that, as the DTA with Spain sets out clearly the allocation of taxing rights between the two jurisdictions and the relief on tax rates on different types of passive income, it will help investors better assess their potential tax liabilities from cross-border economic activities.
"The agreement will boost closer economic and trade ties between the two places, and provide added incentives for companies in Spain to do business or invest in Hong Kong, and vice versa," he added.
In the absence of a DTA, income earned by Spanish residents in Hong Kong are subject to both Hong Kong and Spanish income tax. Profits of Spanish companies doing business through a branch in Hong Kong are fully taxed in both places. Under the agreement, tax paid in Hong Kong will be allowed as a credit against Spanish tax payable.
Under the agreement, Hong Kong airlines operating flights to Spain will be taxed at Hong Kong's corporation tax rate (which is lower than that of Spain). Profits from international shipping transport earned by Hong Kong residents that arise in Spain, which are currently subject to tax there, will not be taxed in Spain under the agreement.
The Hong Kong/Spain DTA will also incorporate the latest Organisation for Economic Co-operation and Development standard on exchange of tax information, and will come into force after the completion of ratification procedures on both sides.
It was confirmed that Hong Kong is actively seeking to establish a network of DTAs with its major trading and investment partners. Where 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. 27 avoidance of double taxation agreements on airline income, six agreements on shipping income and two agreements on airline and shipping income have, so far, been agreed.
