Double taxation arises when two or more tax jurisdictions overlap, such that the same item of income or profit is subject to tax in each.
Hong Kong adopts the territoriality basis of taxation, whereby only income / profit sourced in Hong Kong is subject to tax and that derived from a source outside Hong Kong by a local resident is in most cases not taxed in Hong Kong. Therefore, Hong Kong residents generally do not suffer from double taxation. Many countries which tax their residents on a worldwide basis also provide their residents operating businesses in Hong Kong with unilateral tax credit relief for any Hong Kong tax paid on income / profit derived from Hong Kong. Hong Kong allows a deduction for foreign tax paid on turnover basis in respect of an income which is also subject to tax in Hong Kong. Businesses operating in Hong Kong therefore do not generally have problems with double taxation of income.
A Double Tax Agreement ("DTA") is a bilateral agreement between two countries that seeks to eliminate the double taxation of income. The main purpose of a DTA is to modify the tax rights of the respective jurisdictions. DTAs generally over-ride domestic law.
A DTA provides certainty to investors on the taxing rights of the contracting parties; helps investors to better assess their potential tax liabilities on economic activities; and provides an added incentive for overseas companies to do business in Hong Kong, and likewise, for Hong Kong companies to do business overseas;
Therefore, it has been the policy of the HK Government to establish a DTA network that would minimize exposure of Hong Kong residents and residents of the DTA partner to double taxation.
Method of relieving double taxation
DTA can be divided into 3 categories :
Due to the international nature of transportation operations, airline and shipping operators are more susceptible to double taxation than other taxpayers. Therefore, most DTA is relating to airline and shipping business.
Hong Kong has actively engaged the trading partners in negotiating DTAs. Please click below links for more information on:
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