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. Under Hong Kong’s territorial source principle of taxation, Hong Kong residents generally are not subject to double taxation. This article will help you understand (i) the double tax arrangements/agreements; (ii) the Certificate of Resident Status; and (iii) the application procedures.
Double Tax Agreements/Arrangements
Despite the territorial source principle of taxation, the Hong Kong government has concluded double tax agreements/arrangements (DTA) with many trading partners, such as Canada, China, France, India, Japan, Korea, and the UK. These agreements/arrangements provide certainty to investors and a mechanism to avoid double taxation on the same income.
The international nature of airline and shipping operations makes airline and ship operators more susceptible to double taxation. For airline income, Hong Kong has included double taxation relief arrangements in Air Services Agreements between Hong Kong and the aviation partners. For shipping income, Hong Kong legislation has provided for reciprocal tax exemptions with Korea, New Zealand and Chile, so ship operators can benefit from tax relief. Hong Kong has also entered into negotiations of double taxation relief arrangements for shipping income with other places that either do not provide reciprocal tax exemptions or prefer concluding a bilateral agreement.
How can I benefit from the Double Tax Agreements/Arrangements?
To claim tax benefits from the double tax agreements/arrangements, a person needs to prove residential status by obtaining a Certificate of Resident Status issued by a Hong Kong competent authority. The issue of this certificate may be refused where it is clear that the person would not be entitled to the benefits provided by the double tax agreements/arrangements. Nevertheless, the issue of this certificate does not guarantee that persons will be successful in their claim to the relevant tax benefits.
How can I apply for a Certificate of Resident Status?
The general requirements for an application for a Certificate of Resident Status are:
- An individual who ordinarily resides in Hong Kong;
- An individual who stays in Hong Kong for more than 180 days during a year of assessment or for more than 300 days in two consecutive years of assessment one of which is the relevant year of assessment;
- Company/partnership/trust/body of persons incorporated or constituted in Hong Kong;
- Company/partnership/trust/body of persons incorporated or constituted outside Hong Kong but managed or controlled in Hong Kong.
You should refer to the relevant article and protocol of the relevant double tax agreements/arrangements to check whether you qualify as a Hong Kong resident. Relevant application forms should be submitted by post to the Assessor of the Tax Treaty Section under the Inland Revenue Department. The application usually takes 21 days for processing and the certificate would be sent out by post.
Key Takeaways
- The prevention of double taxation due to the territorial source principle of taxation in Hong Kong is governed by double tax agreements/arrangements.
- A Certificate of Resident Status should be obtained to claim tax benefits from the double tax agreements/arrangements.
References:
- Double tax relief: https://www.ird.gov.hk/eng/pol/dta.htm
- Double Tax Agreements/Arrangements trading partners: https://www.ird.gov.hk/eng/tax/dta_inc.htm
- Application form for the Certificate of Resident Status: https://www.ird.gov.hk/eng/tax/dta_cor.htm