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Businessmen of HK and Vietnam benefit from Avoidance of Double Taxation Agreement (English only) (with photo)


An agreement between Hong Kong and Vietnam for the avoidance of double taxation provides certainty and preferential tax treatment, which will enable businesses and individuals to better assess their investment positions and to foster closer investment and trade links between the two places.

Speaking at a seminar in Hanoi, Vietnam, today (August 4, Hanoi time), the Commissioner of Inland Revenue, Mrs Alice Lau, told the Vietnamese businessmen and Hong Kong investors there that the agreement would benefit Hong Kong companies doing business in Vietnam and Hong Kong residents working in Vietnam, who will also enjoy tax savings.

The Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income was signed by the two governments on December 16, 2008, and will come into force after both sides have completed the necessary approval procedures.

Hong Kong has a territorial-based tax system, under which only earnings sourced in Hong Kong are taxable. In addition, Hong Kong does not levy any withholding taxes on passive income such as dividend and interest.

“However, benign as our taxation system may be, double taxation can occur,” Mrs Lau said. “Despite that many jurisdictions do provide their residents with unilateral tax relief for the Hong Kong tax they paid on income derived from there, the existence of a double taxation agreement will provide enhanced certainty and stability in respect of the elimination of double taxation.”

A Hong Kong company may carry on business in Vietnam through a factory or a branch, which would be regarded as a permanent establishment (PE). Before the Agreement, this Hong Kong company would have to pay tax in Hong Kong as well as Vietnam in respect of the profits it derived from this PE.

After the Agreement comes into force, the Vietnam tax so paid could be allowed as a credit, i.e. deducted, against the Hong Kong tax payable in respect of the same income. In this way, double taxation can be eliminated.

Mrs Lau gave an illustration where Airline K, a Hong Kong resident company, which derived profits of US$250,000 in Vietnam for the year 2008, would enjoy a 34% tax savings under the Agreement.

Prior to the conclusion of the Agreement, Airline K’s profits derived in Vietnam will be exempted in Hong Kong as it is not sourced in Hong Kong, whereas such profits would be subject to business tax at 25% in Vietnam.

With the Agreement in place, Airline K’s profits derived in Vietnam will be exempted from tax in Vietnam, but will instead be subject to tax in Hong Kong by virtue of its domestic law. However, the corporate tax rate in Hong Kong is only 16.5%. Hence, Airline K’s tax liability would be lowered by 34%.

Mrs Lau added that profits from international shipping transport earned by Hong Kong residents that arise in Vietnam will enjoy full tax exemption after the Agreement becomes effective.

Turning to the benefits to individuals, she said under the Agreement, a Hong Kong resident working in Vietnam will not be charged Vietnamese tax if all of the following conditions are met:

1) his presence in Vietnam, whether continuous or not, does not exceed 183 days in any 12-month period commencing or ending in the fiscal year concerned; and

2) his remuneration is paid by, or on behalf of, an employer who is not a resident of Vietnam; and

3) his remuneration is not borne by a PE or a fixed base which the employer has in Vietnam.

In addition, Mrs Lau pointed out that for Hong Kong residents deriving royalties in Vietnam for the use of, or the right to use, any patent, design or model, plan, secret formula or process, whether in respect of individuals or enterprises, the withholding tax rates will be lowered from the current rate of 10% to 7%.

Organised by the Hong Kong Economic and Trade Office (HKETO) in Singapore, the seminar provided an unprecedented occasion when the tax authorities of Vietnam and Hong Kong joined to elucidate the Agreement to businessmen and investors of both sides.

Deputy Director General, General Department of Taxation of Vietnam, Madam Le Hong Hai, also briefed the seminar on the regulations and procedures for application of the Agreement in Vietnam.

The Acting Director of HKETO in Singapore, Mr Law Kin-wai, in his welcoming remarks at the seminar said, “Under the framework of ‘One country, Two systems’, we enjoy a high degree of autonomy, maintaining our status as a free port, a common law jurisdiction, an independent tax regime, a separate WTO member and a separate customs territory.”

Highlighting Hong Kong's attractiveness for investors including proximity to and close relationship with Mainland China, he appealed to Vietnamese enterprises to make use of Hong Kong to expand into the Mainland and international markets.

In the second part of the seminar, the Associate Director-General of Invest Hong Kong, Mr Charles Ng, and Director, Indochina, of the Hong Kong Trade Development Council, Ms Tina Phan, introduced to the audience the various business opportunities and strategic advantages in Hong Kong and Mainland China.

The seminar today attracted more than 100 participants from the business sector in Hanoi. A similar seminar will be held in Ho Chi Minh City tomorrow (August 5).

Ends/Tuesday, August 4, 2009
Issued at HKT 16:07


The Commissioner of Inland Revenue, Mrs Alice Lau, at a seminar held in Hanoi, Vietnam, today (August 4, Hanoi time) told Vietnamese businessmen and Hong Kong investors about the benefits they would enjoy under the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income between Hong Kong and Vietnam.