Hong Kong, Malta Sign DTA

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

09 November 2011

On November 8, Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, and Malta’s Ambassador to China, Joseph Cassar, signed a double taxation agreement (DTA) between Hong Kong and Malta.

The comprehensive DTA, the 22nd such agreement concluded by Hong Kong with its trading partners, sets out the allocation of taxing rights between the two jurisdictions and the tax relief on different types of passive income, which, it is hoped, will help investors to better assess their potential tax liabilities from cross-border economic activities.

The agreement should therefore boost closer economic and trade ties between the two places, and provide added incentives for companies in Malta to do business or invest in Hong Kong, and vice versa.

In the absence of a DTA, income earned by Malta residents in Hong Kong is subject to both Hong Kong and Malta income tax. Profits of Malta companies doing business through a branch in Hong Kong are fully taxed in both places. Under the agreement, however, tax paid in Hong Kong will be allowed as a credit against tax payable in Malta.

In addition, under the DTA, Hong Kong airlines operating flights to Malta will be taxed at Hong Kong's corporation tax rate (which is lower than that of Malta). Profits from international shipping transport earned by Hong Kong residents that arise in Malta, which are currently subject to tax there, will not be taxed in Malta under the agreement.

The Hong Kong/Malta DTA has also incorporated the latest Organization for Economic Co-operation and Development standard on exchange of information relating to tax matters.

The agreement will come into force after the completion of ratification procedures on both sides.

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