What is double taxation

• Double taxation arises when two or more tax jurisdictions overlap, such that the same item of income or profit is subject to tax in each.

HK¡¯s special case - because of territorial concept - no need of double tax treaty

• Hong Kong adopts the territorial basis of taxation, whereby only income / profit sourced in Hong Kong is subject to tax and that derived from a source outside Hong Kong by a local resident is in most cases not taxed in Hong Kong;
• Therefore, Hong Kong residents generally do not suffer from double taxation;
• Many countries which tax their residents on a worldwide basis also provide their residents operating businesses in Hong Kong with unilateral tax credit relief for any Hong Kong tax paid on income / profit derived from Hong Kong;
• We allow a deduction for foreign tax paid on turnover basis in respect of an income which is also subject to tax in Hong Kong. Businesses operating in Hong Kong therefore do not generally have problems with double taxation of income.

Double Tax Agreement (DTA) - provides more certainty

• Notwithstanding this, the Hong Kong Government recognizes that there are merits in concluding double taxation agreements (DTAs) with our trading partners;
• A DTA provides certainty to investors on the taxing rights of the contracting parties; helps investors to better assess their potential tax liabilities on economic activities; and provides an added incentive for overseas companies to do business in Hong Kong, and likewise, for Hong Kong companies to do business overseas;
• Therefore, it has been the policy of the HK Government to establish a DTA network that would minimize exposure of Hong Kong residents and residents of the DTA partner to double taxation.

DTA coverage

• Can be divided into 3 categories :
  • Airline related income;
  • Shipping related income;
  • General income (other than airline and shipping business);
• Due to the international nature of transportation operations, airline and shipping operators are more susceptible to double taxation than other taxpayers. Therefore, most DTA is relating to airline and shipping business.

Hong Kong - Double Tax Agreement (DTA) - as at 30/7/2008

• ( Extracted from IRD website = Country / Territory Analysis )

• Generally, tax filing in Hong Kong (HK) is once a year;
• 1st tax filing request will be issued by tax department around 18 months after company is incorporated;
• future tax filing will be around April or May each year;

• if our company is the register address and company secretary, the request will be sent to us;
• we'll advise client about the request:
• advise about the deadline;
• advise possible annual financial year end to use - usually using 31/3 each year;
• seek client approval whether appoint us to handle the work;
• collect info about business operation - to determine how to handle the filing;
• collect info about business operation
• one of the key info to clarify is whether client has any business activity started yet in HK
• considering HK adopts territorial concept of tax, no tax is payable if there is totally no business activty in HK;
• of course, the tax rule adopts tax jargon and it is written in legal terms. Therefore,
• if need to have thorough reading of this tax concept;
• if need to have general idea, the testing criteria will be:
• any operational office in HK ?
• any staff hired in HK ?
• any customers located in HK ?
• any suppliers located in HK ?
• any goods shipped into HK ?
• audit report and offshore tax exemption application
• audit report is about the numbers - to calculate how much profit or loss is generated;
• tax exemption is focus on how the business is operated - to see whether the income is earned in HK;
• duty to keep proper accounting record
• no matter how the tax filing is handled, it is always a company's duty to keep proper record of all income and expenses;