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Hong Kong – China Double Tax Treaty

Hong Kong – China Double Tax Treaty

The Hong Kong Special Administrative Region and the People’s Republic of China have signed an agreement for the avoidance of double taxation on income and the prevention of fiscal evasion. This double tax agreement encourages trade and business relations between the two regions and is beneficial for foreign investors to and from China.

The treaty establishes preferential rates for the withholding tax, the taxation of income and other taxes on profits and employment. Our lawyers in Hong Kong can guide you throughout the provisions of the double tax treaty with China if you are a Chinese investor who wants to open a business in Hong Kong o vice versa.

Taxes covered by the Hong Kong – China DTA

Hong Kong has a low tax regime, thus, the Government imposes fewer taxes than in the case of China. The double tax treaty applies to the taxes levied on profits, those on salaries and the property tax. Hong Kong has no tax on dividends, royalties or interest but the treaty contains provisions for their reduction in China.

The taxes for which the double tax treaty applies in the case of China are the individual income tax, the foreign investment enterprises tax, and the foreign enterprises income tax.

Other provisions specific to the Hong Kong DTA

The double tax treaty between Hong Kong and Mainland China sets new treaty tax rates for the withholding income tax: the treaty rates for the withholding tax on dividends are 5% or 10% and those for royalty and interest 7% (or 0% for interest in some cases). 

For taxation purposes, a Hong Kong resident is an individual who is a resident or one who spends more than 180 days in the city during one tax year. A Hong Kong company is one that is incorporated in the city or one that it is managed and controlled from Hong Kong, even if it is incorporated in another jurisdiction.

Double taxation relief is advantageous for those businesses that derive income both from a permanent establishment in China and one in Hong Kong, such as a branch.

The double tax treaty also contains provisions for information exchange between China and Hong Kong. This is done for the purpose of tax collection and the avoidance of fiscal evasion.

For more information about double tax treaties in force in Hong Kong or how to do business here please contact our Hong Kong law firm.