Hong Kong and India enter into tax pact
Hong Kong (HKSAR) – The Financial Secretary, Mr Paul Chan, on behalf of the Government of the Hong Kong Special Administrative Region, signed in Hong Kong today (March 19) a comprehensive agreement for the avoidance of double taxation (CDTA) with the Ambassador of India to China, Mr Gautam Bambawale, signifying the Government’s sustained efforts in expanding Hong Kong’s tax treaty network.
The CDTA sets out the allocation of taxing rights between the two jurisdictions and will help investors better assess their potential tax liabilities from cross-border economic activities.
In 2017, India was Hong Kong’s seventh largest trading partner and the total value of bilateral trade reached HK$266 billion. Following the conclusion of the CDTA with India, 13 of Hong Kong’s top 20 major trading partners are also CDTA partners, accounting for about 73 per cent of Hong Kong’s world trade.
Mr Chan said, “This is the 39th CDTA that Hong Kong has signed with its trading partners. Hong Kong has all along treasured its economic and trade connections with India, and I have every confidence that the signing of the CDTA will bring trade relations between the two places to a new level.”
Under the CDTA, double taxation will be avoided in that any Indian tax paid by Hong Kong companies will be allowed as a credit against the tax payable in Hong Kong on the same profits, subject to the provisions of the tax laws of Hong Kong. Likewise, for Indian companies, the tax paid in Hong Kong will be allowed as a deduction from the tax payable on the same income in India.
Moreover, the agreement provides the following tax relief arrangements:
(a) India’s withholding tax rate for Hong Kong residents on interest (currently at 20 per cent in general) will be capped at 10 per cent;
(b) Hong Kong airlines operating flights to India will be taxed at Hong Kong’s corporation tax rate, and will not be taxed in India; and
(c) Profits from international shipping transport earned by Hong Kong residents arising in India and subject to tax there will enjoy 50 per cent reduction in tax in India.
The Hong Kong-India CDTA has also incorporated an article on exchange of information, which enables Hong Kong to fulfil its international obligations on enhancing tax transparency and combating tax evasion.
The CDTA will come into force after the completion of ratification procedures by both sides. In the case of Hong Kong, the CDTA will be implemented by way of an order to be made by the Chief Executive in Council under the Inland Revenue Ordinance. The order is subject to negative vetting by the Legislative Council.