HK signs DTA with Indonesia

On March 23, Hong Kong’s Financial Secretary, John Tsang, and the Indonesian Minister of Finance, Sri Mulyani Indrawati, signed a comprehensive double taxation agreement between Hong Kong and Indonesia. The signing ceremony took place in Jakarta.

This DTA was the 8th such agreement concluded by Hong Kong. The new document will eliminate double taxation instances encountered by Hong Kong and Indonesian investors as well as bring about tax savings and certainty in tax liabilities regarding cross-border economic activities.

It is expected that the agreement will help foster closer economic and trade conections between the two jurisdictions. Also, it is hoped that it will provide added incentives for Indonesian enterprises to do business or invest in Hong Kong, and vice versa.

The comprehensive DTA also includes the prevailing international Organisation for Economic Co-operation and Development (OECD) standard on tax information exchange. The DTA between Hong Kong and Indonesia is among the 1st series of DTAs, following the DTAs between Hong Kong and Brunei and Hong Kong and Netherlands, signed by Hong Kong using that standard. It is expected that more double tax treaties will be signed in the future using this new standard.

The DTA will come into force after the completion of ratification procedures in both countries.

Filed under: Taxation

New statistics shows that research and development expenditure rises

According to the Census & Statistics Department, gross domestic expenditure on research and development in Hong Kong increased from $9.5 billion in 2004 to $12.3 billion in 2008, which represents an average annual growth rate of 7%.

According to the March 2010 issue of the Hong Kong Monthly Digest of Statistics that was released on March 22, spending on research and development performed by local business establishments dropped to $5.27 billion, which is a decline of 13%.

In 2008, research and development expenditure in the higher education sector increased by 10% to $6.65 billion. The figure for the government sector surged 28% to $379 million.

Filed under: Business and Economy

HK and Netherlands sign DTA

On March 22, a comprehensive agreement for avoidance of double taxation was signed by Hong Kong and the Netherlands. The new DTA will apply to income taxes.

Secretary for Financial Services & the Treasury Professor KC Chan and Dutch Minister of Finance JC de Jager signed the agreement. It is expected that the move will expand mutual investments as well as boost economic relations between Hong Kong and the Netherlands.

Professor Chan said: "I am confident the agreement will encourage greater flow of investment, technology, talent and expertise between us for the mutual benefit of both economies. The Hong Kong-Netherlands [deal] is the first agreement we concluded with an Organisation for Economic Co-operation & Development member country adopting the latest international standard on exchange of information".

Under the DTA, withholding tax rates on passive income including dividends and royalties will be lowered. A withholding tax rate of 0% (instead of the 15% rate currently applicable in the Netherlands) applies to dividends received by those holding at least 10% of the share capital of the paying companies, as well as dividends received by banks and insurance companies, pension funds, headquarters companies and other qualifying entities. A withholding tax rate of 10% will apply to other dividends. No source taxation will apply to interest payments. Also, no withholding tax will apply for such payments in either party. As regards royalties, Hong Kong has agreed to limit its withholding tax to 3%.

Before the agreement comes into force, it must be ratified in both jurisdictions.

Filed under: Taxation

DTA between HK and Malaysia broached

Hong Kong’s Financial Secretary John Tsang and Malaysian Prime Minister Najib Razak have agreed to sign a double taxation agreement (DTA) between the two jurisdictions.

On March 17, Tsang launched his Southeast Asian tour in Kuala Lumpur.

He met Najib with a view to forge closer economic relations with Malaysia. According to Tsang, there is room for further co-operation between Hong Kong and Malaysia.

Also, Hong Kong’s Financial Secretary exchanged views with Malaysian Finance Minister II Ahmad Husni Hanadzlah during a lunch.

Then he called on the Malaysian National Economic Advisory Council in order to meet its chairman Amirsham Aziz to discuss the world economy and share experiences regarding the global economic crisis.

Also, Tsang met with Chinese ambassador to Malaysia Liu Jian.

Filed under: Taxation

HK and Liechtenstein initial DTA

It has been announced by the government of Liechtenstein that negotiations for a convention for avoiding double taxation and fiscal evasion with Hong Kong have been concluded. Also, a text of the DTA has been initialled.

The document is based on the Organization for Economic Cooperation and Development (OECD) Model Convention for avoiding double taxation. According to the government of Liechtenstein, the agreement is tailored to the needs of a "dynamic economic relationship characterized by a low tax burden."

Once approved by the respective governments, the agreement will be signed in the coming weeks. Then it is to be ratified by Hong Kong and Liechtenstein. It will apply to tax years after it comes into effect.

Liechtenstein’s Prime Minister Klaus Tschütscher said: "With this agreement, we are creating enhanced legal certainty in our economic relations with Hong Kong and are opening new perspectives for the Liechtenstein industry and financial centre in the Asian growth market".

Filed under: International Business Environment

HK reviews Property Taxes

On March 12, the traditional post-budget speech was made by Hong Kong’s Financial Secretary, John Tsang, at the Joint Business Community Luncheon. Tsang reviewed the tax measures that were taken with a view to increase the transaction cost of property speculation to reduce the risk of a property bubble.

In the budget, the government of Hong Kong proposed that from April 1, stamp duty on properties valued at over HK$ 20 million (USD 2.6 million) will be raised from 3.75% to 4.25%. Also, buyers will no longer be allowed to defer payment of stamp duty on such transactions. Hong Kong’s government will closely monitor the trading of properties valued at or below HK$ 20 million. In case of excessive speculation in the trading of these properties, extending the measures to these transactions will be considered by the government.

Tsang said that the Inland Revenue Department has established procedures in order to track property transactions that involve speculation. According to him, “if these transactions were found to constitute a business, we will levy profits tax, the current rate is 16.5%, on those concerned for profits arising from such transactions.”

The government will work to ensure transparency in property transactions and strengthen market regulations, as well as to prevent the excessive expansion of mortgage lending and to ensure banks process mortgage loan applications prudently.

Filed under: Taxation

No Departure Tax for HK

According to Professor KC Chan, Hong Kong’s Secretary for Financial Services and the Treasury, the government should not introduce a ‘Boundary Facilities Improvement Tax’ now. He suggested that the government of Hong Kong has to consider carefully if it is appropriate to impose additional departure tax on passengers who leave for Macau.

On March 10, when responding to lawmakers’ questions, he said that the government introduced the Boundary Facilities Improvement Tax Bill into the Legislative Council (LegCo)  in 2003. He explained the following: "At that time, there were quite extensive views in both the LegCo and the community that the proposal would add to the burden of frequent commuters between the Mainland and Hong Kong. They considered that the proposal would affect adversely the growing integration between Hong Kong and the Mainland as well as the economic recovery at the time. Hence, they opposed the Government’s proposal".

As to imposing an additional departure tax on passengers who leave for Macau, Chan said that, from a revenue-generating perspective, this type of tax is quite unlikely to bring about substantial revenue if set at a level the general public could afford.

Filed under: Taxation

HK to promote links with Japan

February 28 to March 2, Secretary for Commerce & Economic Development Rita Lau was visiting Tokyo in order to promote stronger ties between Hong Kong and Japan in the creative industry, tourism and business sectors.

During the visit, Mrs Lau called on leading design houses and had exchanges with prominent designers in the fields of industrial design, fashion, lifestyle products and others. It should be noted that Japan is the partner country for Hong Kong’s Business of Design Week 2010.

On March 1, Mrs Lau attended the Hong Kong Economic & Trade Office in order to meet major local interlocutors and update them on the economic developments and business environment in Hong Kong. Also, this reception marked the successful completion of the Hong Kong-Japan Tourism Exchange Year aimed at promoting 2-way tourism and enhancing cultural exchange.

Filed under: International Business Environment