HK signs DTA with Pakistan

On February 17, Hong Kong and Pakistan signed a comprehensive double taxation agreement (DTA), which sets out the allocation of taxing rights between the two countries and will aid the assessment of tax liabilities arising out of cross-border economic activities.

Hong Kong’s Secretary for Financial Services and the Treasury, K C Chan, said that this was the 37th CDTA that Hong Kong has signed with its trading partners, and its signing “signifies the Government’s sustained efforts in expanding Hong Kong’s CDTA network, in particular with economies along the Belt and Road.”

Under the new agreement, double taxation will be avoided in that any Pakistani tax paid by Hong Kong companies will be allowed as a credit against the tax payable in Hong Kong on the same profits. Similarly, for Pakistani companies, the tax paid in Hong Kong will be allowed as a deduction from the tax payable on the same income in Pakistan.

This DTA also provides that Pakistan’s withholding tax rates for Hong Kong residents on royalties and on fees for technical services (both currently at 15%) will be capped at 10% and 12.5%, respectively. Pakistan’s withholding tax rate for Hong Kong residents on dividends (currently at various rates up to 25%) and interest (currently at various rates up to 17.5%) will be capped at 10%.

Hong Kong airlines operating flights to Pakistan will be taxed at Hong Kong’s corporation tax rate, and will not be taxed in Pakistan; and profits from international shipping transport earned by Hong Kong residents that arise in Pakistan, currently subject to tax there, will enjoy a 50% reduction.

The new agreement also incorporates an article on the exchange of tax information, which will enable Hong Kong to add to the fulfillment of its international obligations on enhancing tax transparency and combating tax evasion.

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

Filed under: Business and Economy, International Business Environment, Offshore Legislation, Taxation

HK and South Korea to Automatically Exchange Tax Data

On January 23, 2017, Hong Kong and South Korea signed a Competent Authority Agreement (CAA) to allow for the automatic exchange of financial account information in tax matters (AEOI) from 2019.

According to a Hong Kong Government spokesperson, since the signing of the first 2 agreements for AEOI with Japan and the United Kingdom in late 2016, Hong Kong has been seeking to expand Hong Kong’s AEOI network with other tax treaty partners. So, the signing of the agreement with South Korea signifies the Government’s efforts in this respect.

Hong Kong’s Government has previously emphasized that it is supportive of the international efforts to enhance tax transparency and combat cross-border tax evasion, and that it would expand Hong Kong’s network of CAAs with partner countries, particularly those with which it has previously completed a double taxation agreement (DTA).

When announcing the signing of the CAA, South Korea’s Ministry of Strategy and Finance stated that, although the two jurisdictions have provided each other with tax information on request since 2016, when the South Korea-Hong Kong DTA entered into force, the CAA “will provide a more effective way to avoid international tax evasion.” So far, South Korea has signed bilateral CAAs with the United States and Singapore. It is to work on further agreements with 45 countries in 2017, and is expected to add 31 countries in 2018 to the list of CAAs in force.

Filed under: Business and Economy, Financial Services, HK as a Financial Centre, International Business Environment, Taxation