A Guide To Double Taxation Agreement Hong Kong Tax Treaties

As businesses expand globally and people are earning more and more income across borders, taxation in multiple jurisdictions becomes a growing concern. Therefore, Hong Kong tax treaties, or Double Taxation Agreements (DTAs), are a critical aspect of the dynamic world of international finance and taxation. These international agreements are designed to protect taxpayers from being taxed twice on the same income and to develop cross-border trade and investment. In this article, we will explore how DTAs work, who can benefit from it and how to claim relief from double taxation in Hong Kong.

What Is Double Taxation? 

Double taxation is when the same income is taxed in two jurisdictions typically, the source jurisdiction (where the income is earned) and the residence jurisdiction (where the taxpayer resides). This is a common challenge for individuals and businesses engaged in cross-border activities especially when their income is generated in one country and they reside in another.

The territorial tax system in Hong Kong generally protects against double taxation by taxing only income sourced within Hong Kong. The income earned offshore is typically exempt from Hong Kong profits tax. After the introduction of the Foreign Sourced Income Exemption Regime (FSIE) in January 2023, certain types of passive income such as interest, dividends and capital gains that are derived from foreign sources may now be subject to taxation in Hong Kong if they are not properly structured or substantiated. This creates the risk of double taxation for multinational entities and individuals who earn high net worth.

Related Article: 2025 Tax Filing Season: Tax Deadline in Hong Kong You Need To Know About

What Is A Double Taxation Agreement (DTA)? 

A double taxation agreement (DTA) is a formal tax treaty between Hong Kong and another jurisdiction designed to avoid the same income being taxed twice. These agreements serve to allocate taxing rights and help prevent tax evasion through increased transparency and cooperation. 

DTA usually bypass conflicting provisions in domestic tax laws to ensure that taxpayers are not penalized for earning income across borders. Within the framework of Hong Kong’s territorial source principle, the double taxation agreement complements local tax rules by providing additional relief measures such as tax credits, exemptions or deductions when income is taxed both in Hong Kong and a treaty partner country. As of September 2024, Hong Kong has signed DTA with 51 jurisdictions and is in negotiations with 16 jurisdictions.

List of 51 Countries Hong Kong Signed Comprehensive Double Taxation Agreement

Learn more details about the lists of Double Taxation Agreements (DTAs)

Learn details about Negotiations in Progress

What Do Hong Kong Tax Treaties Typically Include?

Double Taxation Agreement (DTA) Hong Kong follows the OECD model and aims to promote cross-border trade and investment by offering tax certainty and fairness. While each treaty may have its own term, most Hong Kong tax treaties include the following standard provisions:

• Permanent Establishment (PE) which is crucial for determining where business profits are taxed. 
• Allocation of Income Types which specifies how income such as dividends, interest, royalties, capital gains and business profits should be taxed between jurisdictions. 
• Reduced Withholding Tax Rates limits the withholding tax that can be imposed on cross-border payments such as interest and royalties encouraging international transactions. 
• Mutual Agreement Procedure (MAP) provides a dispute resolution that allows tax authorities from both jurisdictions to resolve double taxation or interpretation issues. 
• Residency Tie-Breaker Rules which help determine tax residency for individuals or entities considered residents in both jurisdictions to prevent conflicting claims of taxation. 

How Does Double Taxation Relief Work? 

Hong Kong offers relief from double taxation through both its domestic tax laws and provisions within Comprehensive Double Taxation Agreements (CDTAs). There are three primary methods used to eliminate double taxation: 

Who Can Benefit from Double Taxation Agreement Hong Kong?

 Hong Kong Double Taxation Agreement (DTA) is designed to offer tax relief and tax clarity for residents and businesses engaged in cross-border activities. The main benefits of the Hong Kong DTA are generally available to Hong Kong tax residents which can include: 

• Individuals who stay in Hong Kong for more than 180 days during a year of assessment or more than 300 days across two consecutive years (one of which is the relevant year). 
• Companies, partnerships, trusts or bodies of persons that are either incorporated or constituted in Hong Kong. 
• Foreign-incorporated entities that are managed or controlled from within Hong Kong. 

Examples of DTA Beneficiaries

1. A Hong Kong company earning profits from business operations in Canada may benefit from reduced withholding tax rates under the Hong Kong–Canada DTA.
2. A Hong Kong resident receiving dividends or royalties from Japan may be eligible for tax relief on that income under the Hong Kong–Japan DTA.

If the taxpayer qualifies as a resident in both Hong Kong and another jurisdiction, tie-breaker rules in the relevant double taxation agreement can determine the primary residency to avoid double taxation.

Am I eligible for relief from double taxation in Hong Kong?

To benefit from double tax relief in Hong Kong, the taxpayer must be regarded as a Hong Kong tax resident either as an individual or a business entity. 

Tax Resident Criteria

• Individuals are considered tax residents if they stay in Hong Kong for:
  • More than 180 days in a year of assessment, or 
  • More than 300 days over two consecutive years, one being the relevant year.

• Companies are tax resident if they are:
  • Incorporated in Hong Kong, or 
  • Managed and controlled from HongKong even if incorporated overseas. 

How To Claim Double Tax Relief

• To claim relief, you have to apply to the Inland Revenue Department (IRD) for a Certificate of Resident Status if you are seeking tax benefits under a double taxation agreement. 
• Individuals and entities must submit form IR1313 or IR1314 (depending on jurisdiction and entity type). 
• This certificate serves as proof of residency but does not guarantee DTA benefits, final approval rests with the treaty partner jurisdiction. 

Taxpayers should also be aware that Hong Kong provides relief through tax credit or income exemption, depending on the jurisdiction involved and whether it has a Comprehensive DTA (CDTA) with Hong Kong.

Conclusion

Understanding Double Taxation Agreements (DTAs) is essential for individuals and businesses engaging in cross-border activities, as they help minimize tax burdens, prevent double taxation, and ensure compliance with international tax standards. With Hong Kong’s growing network of DTAs and evolving tax rules, ensure to stay informed and seek professional advice.