Hong Kong and China have a double taxation agreement that aims to avoid taxpayers being taxed twice on the same income. This agreement helps to promote trade and investment flows between the two countries and provides clarity and certainty for taxpayers.
The agreement between Hong Kong and China was signed in 2006 and has been in force since April 2007. It applies to taxes on income, which includes taxes on profits, income from employment, dividends, interest, royalties, and capital gains.
Under the agreement, the tax on income is generally payable in the country where the income arises. However, there are certain exceptions to this rule.
For example, if a Hong Kong resident has a permanent establishment in China, they will be subject to tax on the income attributable to that establishment in China. Similarly, if a Chinese resident has a permanent establishment in Hong Kong, they will be subject to tax on the income attributable to that establishment in Hong Kong.
In addition, the agreement provides for a reduced withholding tax rate on dividends, interest, and royalties. If a Hong Kong resident receives dividends, interest, or royalties from China, the withholding tax rate will be reduced from the standard rate to a lower rate specified in the agreement.
The agreement also provides for a mechanism to resolve any disputes that may arise between Hong Kong and China regarding the interpretation or application of the agreement.
Overall, the double taxation agreement between Hong Kong and China provides a framework for taxation that encourages and promotes trade and investment flows between the two countries. It helps to avoid double taxation and provides certainty and clarity for taxpayers in both Hong Kong and China.
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