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Hong Kong, Brunei DTA Comes Into Effect

by Mary Swire,, Hong Kong

30 December 2010

Both parties having completed their ratification procedures, the double taxation agreement (DTA) between Hong Kong and Brunei, which was originally signed on March 20 this year, came into effect on December 19.

The DTA will eliminate instances of double taxation encountered by Hong Kong and Bruneian investors, and bring about tax savings and certainty in tax liabilities in connection with cross-border economic activities. It is also hoped that it will help to foster closer bilateral economic and trade links, by providing added incentives for Bruneian enterprises to do business or invest in Hong Kong, and vice versa.

For example, at present, Hong Kong residents receiving interest from Brunei are subject to a 15% withholding tax. Under the DTA, this will be reduced to 10%. If the recipient is a bank or financial institution, the withholding tax rate will be further reduced to 5%. Brunei has also agreed to lower the withholding tax on royalties received by Hong Kong residents from Brunei from the current rate of 10% to 5%.

In addition, under the DTA, Hong Kong airlines operating flights to Brunei will be taxed at Hong Kong's corporation tax rate (which is lower than Brunei's). Profits from international shipping earned by Hong Kong residents but arising in Brunei, which are currently subject to tax in Brunei, will enjoy tax exemption under the agreement.

The agreement was also the first DTA Hong Kong signed using the Organization for Economic Cooperation and Development standard on the exchange of tax information.

TAGS: tax | marine | double tax agreement (DTA) | Brunei | interest | royalties | law | aviation | agreements | withholding tax | Hong Kong

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