A Double Tax Agreement (DTA), also known as a double tax treaty, is a bilateral (two-party) agreement made between two countries to avoid double taxation of income and property.
DTAs can help to reduce double taxation and fiscal evasion while also strengthening relationships between Hong Kong and other international tax administrations.
Please keep in mind that DTAs only apply to you if you are a Hong Kong resident or the other DTA jurisdiction.
What are the purposes of DTAs?
According to the Hong Kong Special Administrative Region Government (HKSARG), Double Taxation Agreements (DTAs) serve the following purposes:
- Provide taxpayers with certainty about the contracting parties’ taxing rights
- Aid taxpayers in understanding their potential tax liabilities in the other country
- Prevent double taxation caused by tax jurisdiction overlap
- Eliminate tax avoidance and evasion concerning various types of income flows between Hong Kong and DTA partners
- Determine the tax rules and jurisdictional authority that will govern transaction trade
- Provide additional incentives for overseas businesses to conduct business in Hong Kong and for Hong Kong companies to conduct business in other jurisdictions
Who can apply for DTAs?
A double tax treaty is only available to Hong Kong residents who are not concurrent residents of the contracting countries under the DTAs.
The term Hong Kong resident refers to the following:
- A person who ordinarily resides in Hong Kong i.e. has a permanent home in Hong Kong, or
- An individual who spends more than 180 days in Hong Kong during the assessment year.
For corporations, only Hong Kong-incorporated companies are eligible for relief.
A company is considered a Hong Kong-incorporated company if and only if the following conditions are met:
- It is either incorporated in Hong Kong or
- It is incorporated outside of the country but managed and controlled from Hong Kong
Categories of DTAs in Hong Kong
More than 40 jurisdictions have signed Comprehensive Double Taxation Agreements (DTAs) with Hong Kong. Here is the full list of DTAs for your reference.
Hong Kong’s double tax treaties are classified into five types:
- Comprehensive DTAs
- Airline and shipping income DTAs
- Aircraft operation income DTAs
- Shipping income DTAs
- Exchange of information agreements
Aside from Comprehensive DTAs, Hong Kong has actively engaged trading partners in the negotiation of DTAs that include various types of income.
Notably, airline and shipping income are two areas of concern that deserve priority in addressing double taxation, given the country’s openness to the issue and the long wait for a comprehensive DTA to be signed. Both are categorized as Limited Double Taxation Agreements.
Aircraft operations are international in nature, and as a result, its people – airline operators – are more likely to be influenced by double taxation than other taxpayers. To reduce vulnerability in such cases, Hong Kong has offered a policy on double taxation relief arrangements for airline income in bilateral Air Services Agreements with aviation partners.
Another type of income that may pique your interest is shipping income. Hong Kong has amended the reciprocal tax exemption for shipping income since 1 April 1998 to benefit ship operators.
Accordingly, ship operators are not subject to taxes imposed by jurisdictions with reciprocal tax exemption legislation. Hong Kong has also begun negotiations for a double taxation agreement with other legislation where reciprocal tax exemption is not available.