Double Tax Agreement Hong Kong China

Double tax agreement (DTA) between Hong Kong and China is an important topic for businesses and individuals who are looking to invest or do business in China or Hong Kong.

What is double tax agreement?

A double tax agreement is an agreement between two countries to avoid double taxation on the same income in both countries. The purpose of a DTA is to promote international trade and investment by reducing the tax burden on businesses and individuals. DTAs usually cover taxes on income, including corporate profits, dividends, interest, and royalties.

Hong Kong and China signed their first DTA in 1998, and it became effective in 1999. The agreement was revised in 2006, 2008, and 2015, to reflect the changing business environment between the two jurisdictions. The DTA applies to income tax, including profits tax, salaries tax, and property tax in Hong Kong, and income tax in China.

How does DTA work in Hong Kong and China?

Under the DTA, businesses and individuals who earn income from Hong Kong and China are taxed only in the jurisdiction where the income is earned. For example, if a Hong Kong resident has a business in China and earns income from that business, the income will be taxed in China only, and not in Hong Kong.

The DTA also provides for a tax credit mechanism, which allows taxpayers to claim a credit for taxes paid in one jurisdiction against taxes owed in the other jurisdiction. For example, if a Hong Kong company pays taxes on its profits in China, it can claim a credit for those taxes against its Hong Kong profits tax liability.

Benefits of DTA for businesses and individuals

The benefits of DTA between Hong Kong and China are numerous. For businesses, it means reduced tax burden and the ability to avoid double taxation, which can save a significant amount of money. It also promotes investment and trade between the two jurisdictions. For individuals, it provides clarity on their tax obligations, and it can also lead to reduced tax liability.

Conclusion

The DTA between Hong Kong and China is an important agreement that promotes international trade and investment by reducing the tax burden on businesses and individuals. It provides clarity on tax obligations and avoids double taxation, saving businesses and individuals time and money. Businesses and individuals who are investing or doing business in China or Hong Kong should be aware of the DTA and its benefits.