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Hong Kong, New Zealand Sign DTA

by Mary Swire,, Hong Kong

02 December 2010

On December 1 in Auckland, Hong Kong’s Financial Secretary, John C Tsang, and New Zealand’s Deputy Prime Minister and Minister of Finance, Bill English, signed a bilateral double taxation agreement (DTA) between their two countries.

In the absence of the DTA, the profits of Hong Kong companies doing business through a permanent establishment, such as a sales outlet, in New Zealand may be taxed in both places if the income is Hong Kong sourced. Under the agreement, double taxation will be avoided in that any New Zealand tax paid by the companies will be allowed as credit against the tax payable in Hong Kong in respect of the income, subject to the provisions of the tax laws of Hong Kong.

Without the DTA, Hong Kong residents receiving dividends from New Zealand not attributable to a permanent establishment in New Zealand can be subject to a withholding tax, which is currently set at 30%. Under the agreement, such withholding tax rate will be reduced to 15%. The withholding tax rate will be further lowered to 5% or 0% for qualifying beneficial owners.

Furthermore, Hong Kong residents receiving royalties from New Zealand are subject to a current withholding tax of 15% in New Zealand. Under the agreement, the royalties’ withholding tax will be capped at 5%. The New Zealand interest withholding tax on Hong Kong residents will be reduced from the current rate of 15% to 10%.

The Hong Kong/New Zealand DTA also incorporates the latest Organization for Economic Cooperation and Development international standards on the exchange of tax information.

It is the 17th comprehensive DTA concluded by Hong Kong with its trading partners, and was welcomed by Tsang as further strengthening the bilateral relationship by encouraging the flow of investment and talents between Hong Kong and New Zealand.

"This agreement is an important step forward in strengthening our economic relationship with Hong Kong,” English said. "It is a significant addition to New Zealand’s network of double tax agreements with key trading partners and is potentially valuable to businesses and investors from both here and Hong Kong."

Hong Kong is currently New Zealand’s ninth largest market for exports and an important source of investment. It is hoped that the DTA will make New Zealand a more attractive investment destination for Hong Kong investors, and will make it easier for New Zealand businesses to invest in Hong Kong.

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

TAGS: tax | investment | business | double tax agreement (DTA) | interest | royalties | law | agreements | tax rates | withholding tax | Hong Kong | New Zealand | dividends

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