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Hong Kong signs tax treaty with Malaysia


The Financial Secretary, Mr John C Tsang, today (April 25) signed in Kuala Lumpur an agreement with Malaysia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income on behalf of the Hong Kong Special Administrative Region Government. The Malaysian Minister of Finance II, Dato' Seri Ahmad Husni Mohamad Hanadzlah, signed on behalf of his Government.

This is the 24th comprehensive agreement for the avoidance of double taxation (CDTA) concluded by Hong Kong with its trading partners, coming after those with Belgium, Thailand, the Mainland of China, Luxembourg, Vietnam, Brunei, the Netherlands, Indonesia, Hungary, Kuwait, Austria, the United Kingdom, Ireland, Liechtenstein, France, Japan, New Zealand, Portugal, Spain, the Czech Republic, Switzerland, Malta and Jersey.

Welcoming the agreement, Mr Tsang said it will further strengthen the bilateral relationship by encouraging the flow of investment and talent between Hong Kong and Malaysia.

In the absence of a CDTA, the profits of Hong Kong companies doing business through a permanent establishment, such as a sales outlet, in Malaysia may be taxed in both places if the income is Hong Kong sourced. Under the agreement, double taxation will be avoided in that any Malaysian tax paid by the companies will be allowed as credit against the tax payable in Hong Kong in respect of the income, subject to the provisions of the tax laws of Hong Kong.

In the absence of a CDTA, Hong Kong residents receiving interest from Malaysia are subject to Malaysian withholding tax, which is currently at 15 per cent. Under the agreement, such withholding tax rate will be capped at 10 per cent. The interest withholding tax rate will be further reduced to 0 per cent if the interest is paid or credited to the HKSAR Government, the Hong Kong Monetary Authority, etc. The Malaysian withholding tax on royalties, currently at 10 per cent, will be capped at 8 per cent. The Malaysian withholding tax on fees for technical services, currently at 10 per cent, will be capped at 5 per cent.

Under the CDTA, Hong Kong airlines operating flights to Malaysia will be taxed at Hong Kong's corporation tax rate (which is lower than that of Malaysia). Profits from international shipping transport earned by Hong Kong residents that arise in Malaysia, which are currently subject to tax there, will not be taxed in Malaysia under the agreement.

The Hong Kong/Malaysia CDTA has incorporated the latest Organisation for Economic Co-operation and Development standard on exchange of information.

The Hong Kong/Malaysia CDTA will come into force after the completion of ratification procedures on 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 expand its network of CDTAs with major trading and investment partners. Where CDTA discussions with some jurisdictions cannot be started for the time being, Hong Kong will seek to conclude limited double taxation avoidance arrangements for airline and shipping income with relevant partners. So far, 27 avoidance of double taxation agreements on airline income, six agreements on shipping income and two agreements on airline and shipping income have been reached.

Details of the Hong Kong/Malaysia CDTA will be available on the Inland Revenue Department's website

Ends/Wednesday, April 25, 2012
Issued at HKT 15:53