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Hong Kong signs Avoidance of Double Taxation
Agreement with Vietnam
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Hong Kong today (December 16) signed an Agreement, in Hanoi, with
the Socialist Republic of Vietnam for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on Income.
The agreement is the fifth comprehensive
double taxation agreement Hong Kong signed with its trading partners,
coming after those with Belgium, Thailand, the Mainland of China
and Luxembourg.
The Financial Secretary, Mr John
C Tsang, signed the agreement on behalf of the HKSAR Government.
The Vietnam Vice-Minister of Finance, Mr Do Hoang Anh Tuan, signed
on behalf of the Vietnamese government.
Speaking at the signing ceremony,
Mr Tsang hailed the agreement as elevating the bilateral relationship
between Hong Kong and Vietnam to a new level. "The agreement
represents tax savings and a higher degree of certainty on taxation
rights for investors from both Vietnam and Hong Kong when they engage
in bilateral trade and investment activities. It also fosters economic
co-operation and protects both our governments’ revenue base."
Mr Tsang said.
In the absence of a comprehensive
agreement for the avoidance of double taxation, profits earned by
Vietnamese residents in Hong Kong are subject to both Hong Kong
and Vietnam income tax. Profits of Vietnamese companies doing business
through a branch in Hong Kong are fully taxed in both places. Under
the agreement, double taxation is avoided in that any Hong Kong
tax paid by Vietnam residents or companies shall be allowed as a
credit against any tax payable in respect of the same incomes in
Vietnam.
Also, Hong Kong residents receiving
royalties from Vietnam are subject to a standard withholding tax
of 10% in Vietnam. Under the agreement, the royalties withholding
tax will be capped at 7% where payments are made for the use of
patent, design or model, plan, secret formula or process. The interest
withholding tax will be reduced from the current rate of 10% to
nil if the recipient is the HKSAR Government, the Hong Kong Monetary
Authority or other recognised institutions as mutually agreed.
Profits from international shipping transport earned by Hong Kong
residents that arise in Vietnam, which are currently subject to
tax there, will enjoy tax exemption under the agreement. Hong Kong
airlines operating flights to Vietnam will be taxed at the much
lower corporation tax rate of 16.5% in Hong Kong as against the
corporate tax rate of 28% in Vietnam, which they are subject to
currently.
The agreement sets out clearly the
allocation of taxing rights between the two jurisdictions and the
relief on tax rates on different types of income. It will help investors
better assess their potential tax liabilities from cross-border
economic activities, foster closer economic and trade links between
the two places, and provide added incentives for companies in Vietnam
to do business or invest in Hong Kong, and vice versa.
"I am confident that this agreement
will encourage a greater flow of investment, technology, talents
and expertise between Hong Kong and Vietnam, and that will certainly
help strengthen both our economies for many years to come,"
Mr Tsang said.
The agreement will come into force
after the completion of ratification procedures for both sides.
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 actively seeking to
establish a network of comprehensive agreements for the avoidance
of double taxation with major trading and investment partners, and
has concluded agreements, with Belgium in 2003, Thailand in 2005,
the Mainland of China in 2006 and with Luxembourg in 2007.
Where negotiations for comprehensive
agreements cannot be proceeded with immediately, the Government
is also seeking to conclude limited double taxation avoidance agreements
for airline and shipping income with relevant partners. So far,
24 avoidance of double taxation agreements on airline income, six
agreements on shipping income and two agreements on airline and
shipping income have been made.
Details of the Hong Kong/Vietnam
CDTA can be found on the Inland Revenue Department website at http://www.ird.gov.hk/eng/pdf/dt_vietnam.pdf
Ends/Tuesday, December 16, 2008
Issued at HKT 15:58
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