Tax treaties

Hong Kong has entered into Comprehensive Double Taxation Agreement/Arrangement (DTA) with several jurisdictions. 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, whereas DTA prevents double taxation and fiscal evasion and encourage cooperation between Hong Kong and other international tax administrations.

Under the arrangement of DTA, Hong Kong adopts the territoriality 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. Accordingly, 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. Hong Kong allows a deduction for foreign tax paid on turnover basis in respect of an income which is also subject to tax in Hong Kong.

For example, when a Japan tax resident collects rent on his Hong Kong property, the DTA between the Hong Kong and Japan taxes Hong Kong rental income in Hong Kong. Therefore, no tax is collectable on this foreign sourced rental income when it is brought back to Japan.

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