Hong Kong has an extensive network of comprehensive double taxation agreements (CDTAs), including with Mainland China and many trading partners. A CDTA allocates taxing rights between Hong Kong and the other jurisdiction, can reduce withholding taxes on dividends, interest and royalties, and gives a mechanism to resolve disputes.
Treaty benefits are available only to residents of Hong Kong under the agreement, usually evidenced by a certificate of resident status from the Inland Revenue Department. Rates, conditions and exemptions differ from one agreement to another.
At a glance
- Evidence of residence
- Certificate of resident status, issued by the IRD
- Key test
- Substance: management and operations in Hong Kong
- Anti-abuse
- Benefits can be denied where obtaining them is a main purpose
- Always check
- The specific treaty and the other country's rules
What a CDTA typically covers
| Area | Effect |
|---|---|
| Business profits | Taxable in the other jurisdiction only if there is a permanent establishment there |
| Dividends, interest, royalties | Withholding tax in the source jurisdiction may be reduced |
| Employment income | Rules on which jurisdiction can tax salaries |
| Relief from double taxation | Tax credits for tax paid in the other jurisdiction |
| Disputes | Mutual agreement procedure between tax authorities |
| Exchange of information | Cooperation between tax authorities |
Certificate of resident status
- Issued by the Inland Revenue Department on application, for a specific treaty partner and year.
- For companies, the Department considers whether the company is incorporated in Hong Kong or centrally managed and controlled here, and its business operations in Hong Kong.
- Expect questions on directors, board meetings, staff, office and business activity.
Notable partners
Hong Kong's agreements include those with Mainland China, India, Indonesia, Malaysia, Thailand, Vietnam, the United Arab Emirates, Saudi Arabia, the United Kingdom, France and many others. There is no comprehensive agreement with Singapore or the United States. The list grows regularly; check the Inland Revenue Department's current list.
Practical examples
- Dividends from a Mainland subsidiary: the Mainland withholding tax rate may be reduced to 5% for a qualifying Hong Kong company holding at least 25%, instead of 10%, if beneficial ownership tests are met.
- Service fees from overseas customers: a CDTA may prevent the other country taxing your profits unless you have a permanent establishment there, but some countries still withhold tax at source.
- Staff working abroad: extended stays can create a permanent establishment for the company, or tax liabilities for the employee, in the other country.
- Royalties: reduced withholding rates may apply under the treaty.
Self-check: where do you stand?
| Question | What to do |
|---|---|
| Do you receive income from a treaty country? | Check the relevant treaty |
| Is your company managed and controlled in Hong Kong? | Document board meetings and decisions here |
| Do you hold a certificate of resident status where needed? | If not, apply to the Inland Revenue Department |
| Is foreign withholding tax being deducted at the full rate? | Check whether a reduced rate applies |
- Applying for certificates of resident status.
- Documenting substance and management in Hong Kong.
- Coordinating treaty claims with tax advisers in other countries.
In summary
- Treaties reduce double taxation and withholding taxes.
- Residence certificates and substance are key.
- Check each treaty's specific terms.
Official references
- Inland Revenue Department: comprehensive double taxation agreements and certificate of resident status, www.ird.gov.hk