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Press Release
: News Archives
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
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