(Source : Government Information Centre)
Comprehensive agreement for avoidance of double taxation
signed with Thailand (with photos)
The Government today (September 7) signed an agreement with Thailand on the avoidance of double taxation.
The agreement will provide investors with a further level of certainty in tax liability, foster closer economic and trade links between Hong Kong and Thailand, and provide added incentives for Thai enterprises to invest and do business in Hong Kong, and vice versa.
The Secretary for Financial Services and the Treasury, Mr Frederick Ma, signed the agreement on behalf of the Hong Kong Special Administrative Region Government. The Thai Government was represented by its Minister of Foreign Affairs, Dr Kantathi Suphamongkon.
Speaking at the signing ceremony in Bangkok, Mr Ma said this was the first comprehensive agreement for the avoidance of double taxation (known as a CDTA) that Hong Kong had signed with an Asia-Pacific country.
"The agreement ensures that investors will not have to pay tax twice on the same income. In simple terms, the agreement will translate into tax savings to Thai and Hong Kong investors doing businesses in each other's area, through the allocation of taxing rights between the two places and the provision of tax relief in the case of double taxation," Mr Ma said.
"The agreement also formalises the tax relief currently offered by the two tax authorities, thus providing a further level of certainty and stability to existing and potential investors alike.
"As a result, it will offer added incentives for businesses in Hong Kong and Thailand to enhance their cross-border investments and activities, thus fostering closer economic ties between the two places," Mr Ma said.
Under the agreement:
* Profits remitted by a branch office in Thailand to a Hong Kong head office will not be taxed by the Thai Government. Such remittances are currently subject to a 10% withholding tax in Thailand.
* Income from operation of aircraft in international traffic earned by a Hong Kong resident in Thailand will be exempt from Thai income tax.
* Thai income tax for ship operations in international traffic by a Hong Kong resident will be reduced by 50%.
* Thai withholding tax for royalties that are received from Thailand by a Hong Kong resident and that are not attributable to a permanent establishment will be reduced to 5% if paid for the use of, or the right to use, any copyright of literary, artistic or scientific work (films taxable under this head); and 10% if paid for the use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process. The current rate is 15% on the gross amount of royalties.
* In the case of interest received by a Hong Kong resident (when the interest arises in Thailand and is not attributable to a permanent establishment) the current Thai withholding tax is 15% of the gross amount. Under the agreement, the Thai withholding tax rate will be reduced to 10% if interest is paid to a financial institution or insurance company, or if interest is paid with respect to indebtedness arising from the sale on credit of equipment, merchandise or services.
Subject to the completion of ratification procedures for both sides, the Hong Kong/Thailand CDTA will take effect with respect to Hong Kong taxes from April 1, 2006, and with respect to Thai taxes from January 1, 2006. In the case of Hong Kong, an order is required 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.
Hong Kong is keen to establish a network of CDTAs with its major trading and investment partners. Many places in the region have already established a network of CDTAs. Having such a network in place for Hong Kong will put the territory on a par with other places in the region that already have one, thereby further enhancing Hong Kong's competitiveness in attracting foreign investment.
The Government began to explore the possibilities of concluding CDTAs with Hong Kong's major trading partners in 1998. It concluded a double taxation arrangement with the Mainland that year. In December, 2003, Hong Kong signed its first CDTA with Belgium. Talks on double taxation have also been held with Macau, Vietnam and some member economies of the Organisation for Economic Co-operation and Development (OECD). Discussions are also being held with the Mainland to expand the existing limited avoidance of double taxation arrangement into a comprehensive one to provide further tax relief to Hong Kong and Mainland businessmen.
Details of the agreement can be found at Inland Revenue Department website at http://www.ird.gov.hk/eng/pdf/thailand.pdf.
Ends/Wednesday, September 7, 2005
Issued at HKT 18:33