Hong Kong: Hong Kong's Tax Treaties Update January 2012

Last Updated: 21 February 2012

By WTS Hong Kong Ltd


  • Hong Kong has now signed 22 Double Tax Agreements (DTA). The latest have been with Spain, the Czech Republic and Malta. Most of them will enter in force in 2012.
  • Dividend withholding tax rates in Hong Kong's new DTAs are generally better compared to Singapore or Germany DTA rates.
  • The Exchange of Information (EoI) clause according to the OECD standard of 2004 is being applied, however, it is limited to taxes covered in the respective DTA and the information exchanged must not be transferred to oversight authorities or third countries.
  • Germany and Hong Kong have an agree-ment on mutual legal assistance in criminal matters only. Germany is pres-ently rejecting to enter into negotiations about a comprehensive DTA with Hong Kong.

STATUS OF THE Tax Treaties as at 1 Januar 2012

1. Introduction

By the end of 2009, Hong Kong had 5 comprehensive Double Tax Agreements ("DTAs") in force with Belgium, Thailand, China, Luxemburg and Vietnam.

Since January 2010 Hong Kong signed 17 new DTA, i.e. Brunei, Netherlands, Indonesia, Hungary, Kuwait, Austria, United Kingdom, Ireland, Liechtenstein, France, Japan, New Zealand, Switzerland, Portugal, Spain and Czech Republic. The latest DTA which has been signed in November 2011 is with Malta.

Most of these DBAs are already in force e.g. French Republic since December 2011 and the Netherlands since January 2012.

The negotiations between Mexico and UAE are finalized. However, they are not signed yet. At present, further negotiations are on-going with Bangla-desh, Canada, Finland, India, Italy, Korea, Macau, Malaysia and Saudi Arabia. No negotiations are taking place or are planned for the near future between Hong Kong and Germany.

The reason for the sudden development of Hong Kong signing DTAs was a report by the OECD in 2009 in which Hong Kong (nearly) got grey listed as a not fully cooperating tax jurisdiction. It was then required to enter into 12 comprehensive DTAs with the 2004 OECD standard on EoI by the end of 2010, in order to be regarded as fully compliant and avoid potential economic disadvantages.

All of Hong Kong's new DTAs are based on the 2004 OECD standard. However, two deviations can be found in all of Hong Kong's EoI clauses:

  1. exchange of information is limited to taxes which are covered by the re-spective DTA and
  2. the information received must not be transferred to the oversight au-thorities of the tax authorities or to the authorities of any third country.

Prior to Hong Kong signing these new DTAs, there were necessary amendments to be made in the local tax law, i.e. the Inland Revenue Ordinance (IRO). Thus, the Inland Revenue Amendment (No.3) Bill 2009 introduced the relevant changes.

Additionally, Departmental Interpretation and Practice Notes No. 47 (DIPN 47) provides for further guidance on how to deal with EoI requests such as the obligation to inform the Hong Kong tax payer about the EoI request from the other state.

It has also been clarified, that Hong Kong will not enter into mere "Tax Infor-mation Exchange Agreements"(TIEA). However, it is certainly interesting to note that Hong Kong and Germany have entered into a mutual agreement about the cooperation with regard to criminal matters, which includes cases of tax avoidance.

Under its new DTAs, Hong Kong will exchange information only from the date the respective DTA is in force, i.e. no retroactive application has to be ex-pected.

In the following, we are providing a comparison of the local withholding tax rates and the new DTA rates for dividends, interest and royalties. The first table shows the status of DTAs as at January 2012.

Hong Kong's Double Tax Agreements in chronological order after signing date*

2. Dividends

A Double Tax Agreement can reduce the withholding tax rates for dividends. A further reduction may be considered if the shareholder holds the majority of the shares of the other company.

Hong Kong does not withhold any taxes from dividends. Therefore, we only consider the case that a company in the other contracting state will distribute dividends to Hong Kong.

The following table compares the local withholding tax rates of the distribution countries with the withholding tax rates according to the DTAs.

In the following chart we compare the dividend withholding tax rates for those countries which Hong Kong has signed a DTA with. We compare the local rates with the DTA rates for Hong Kong, Singapore and Germany. We only look at the countries in Asia-Pacific, since most European investors would generally not hold shares in other parts of the world via Hong Kong (or Singapore).

The cells highlighted orange show the best dividend withholding (wht) rate, which can be a local rate (e.g. Brunei) or one (or more) of the DTA rates. For 4 out of 7 countries Hong Kong provides for the best withholding rate, while Singapore has the same rate in the case of China. Germany is obviously a disadvantageous location (purely from the dividend withholding tax rate perspective).

1. Interest

2. Royalties

5. Permanent Establishment

Most of the OECD Member States' (including Germany) DTAs follow the OECD Model Convention in that they do not provide for a service PE. Many Asian countries however follow the United Nations Model Convention, which addi-tionally provides for the service PE. Hong Kong does not apply a consistent standard and thus some of its DTAs do provide for the service PE.

The DTAs with Japan, Netherlands, New Zealand, Spain and the UK do not pro-vide for the service PE.

6. Place of Management

In the Hong Kong Japan DTA a complex definition of place of management has been used. According to Art. 4(1) (a) resident is a company or person having its primary place of management and control in Hong Kong. According to the Protocol, No. 3, this refers to a place where "[...] executive officers and senior management [...] make day-to-day key decisions for the strategic, financial and operational policies for the company or the person, and the staff of such com-pany or person conduct the day-to-day activities necessary for making such decisions." The location where senior management meets to make their strategic decisions may well differ from the location where other persons or staff conduct day-to-day activities.

7. German Investors

Germany is currently not negotiating a DTA with Hong Kong. It is also not clear if or when it comes to negotiations between both countries. The German side rejected a comprehensive double tax agreement in the past and only offered negotiations regarding an agreement of exchange information. The Hong Kong authorities however did not conclude any agreements in respect to the exchange of information, yet.

Hong Kong and Germany are major trading partners in particular for investments from and to China. Therefore a missing DTA caused legal uncertainty. In order to invest from Hong Kong/China to Germany at the moment only indirect investments over other states are in advantages. Similar economical goals can be achieved. However, the costs might be higher.

German companies investing in Hong Kong are only burdened by a slight double taxation as Hong Kong does not withhold any taxes from dividends and interest. Capital gains are also not subject to taxation.

Based on national tax law only royalties are subject to tax (4.95%). However a tax credit might be given in Germany for the tax paid in Hong Kong.

Hong Kong is not (yet) very aggressive in assessing permanent establishments or in adjusting transfer prices, even though the foundations were laid down in late 2009 when for the first time TP regulations have been published. A missing piece may be protection against TP adjustments on the German side, where without a DTA it might be more difficult to get a respective adjustment on the Hong Kong side.

Overall, Hong Kong's new DTAs even with other (Asian) countries may contrib-ute to Hong Kong becoming an even better location as a hub and holding for German groups. As we could show, the withholding tax rates are preferable with most of the treaties Hong Kong is signing. New investors to Asia should therefore consider Hong Kong as their future holding location.


Claus Schuermann

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions