HK Expanding Treaty Network

by Mary Swire, Tax-News.com, Hong Kong

01 April 2010

Hong Kong and Japan have negotiated a bilateral agreement for the avoidance of double taxation (DTA), which will be signed after the completion of necessary internal procedures by the respective governments.

The key provisions of the DTA with Japan are that it clarifies the scope of taxation on business profits of enterprises operating in each other's places, to avoid instances of double taxation, and reduces the withholding tax rates of dividends, interest and royalties paid to residents of Hong Kong and Japan. It should thereby promote further investment and economic exchange between Hong Kong and Japan.

The withholding tax rate on dividends is capped at 5% for a company of one side holding at least 10% of the voting shares of the paying company of the other side, and 10% for other cases; the withholding tax rate on interest is exempt for government institutions and capped at 10% for others; and the withholding tax rate for royalties is capped at 5%.

The DTA will also enable both tax authorities to carry out the effective exchange of information regarding tax matters in accordance with the international standard, and includes provisions to prevent abuse of the agreement.

The agreement will enter into force after ratification (approval by the Legislative Council in the case of Hong Kong and approval by the Diet in the case of Japan).

It was also recently announced that Hong Kong is expected to begin negotiations in October this year to conclude a DTA with New Zealand. The existing DTA between New Zealand and China, which was signed in 1986, does not extend to Hong Kong, given the narrow definition of ‘China’ for the purposes of the agreement.

New Zealand’s Revenue Minister, Peter Dunne, has pointed to the enactment of the tax information exchange law reforms in Hong Kong earlier this year as making the prospective Hong Kong-New Zealand DTA negotiations possible.

"Hong Kong is the ninth largest market for our exports and is an important source of investment,” he noted. "The tax negotiations will help support and strengthen the wider economic ties we share following the signing of the Closer Economic Partnership agreement between Hong Kong and New Zealand."

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