Hong Kong (HKSAR) and the United Arab Emirates
(UAE) entered into a bilateral tax agreement on December 11, 2014 concerning
the avoidance of double taxation. John C. Tsang and Obaid Humaid Al Tayer, the
Financial Secretary of HKSAR and the Minister of State and Financial Affairs of
the UAE respectively signed the agreement.
The agreement made, the Comprehensive Agreement
for the Avoidance of Double Taxation (CDTA) is the 32nd in sequence
that Hong Kong made with its trading partners. The CDTA analytically outlines
the taxation rights amongst the two parties, therefore aiding potential
investors review their possible liabilities concerning taxes when engaged in
foreign economic activities.
The purpose of the bilateral double tax
avoidance agreement is to strengthen both the economic and trade relations
between the jurisdictions as well as to further motivate companies based in the
UAE to invest or engage in business activities in Hong Kong and for companies
based in Hong Kong to further invest and conduct business activities in the
UAE.
Without the CDTA, UAE and Hong Kong residents would have been imposed Income Tax in both countries.
According to the CDTA, tax paid in Hong Kong
will be permissible as a credit against payable taxation within the UAE. Additionally,
without the introduction of the CDTA, the profits generated from companies in
Hong Kong, which are engaged in business via a permanent establishment in the
UAE, would have been imposed taxation in both jurisdictions if the profits
generated derived from Hong Kong. Therefore, with the introduction of the CDTA,
double taxation will be stopped since any taxation paid in the UAE by
corporations will be permissible as a credit against the payable taxation in
Hong Kong according to Hong Kong’s tax legislation. Without the CDTA, UAE and Hong Kong residents would have been imposed Income Tax in both countries.
The Hong Kong-UAE CDTA also includes an article regarding exchange of information between the parties. This provision will aid Hong Kong to realize its obligation on promoting tax transparency as well as diminishing tax evasion.
The Hong Kong-UAE CDTA will come into effect once both nations finalize their approval of the agreement procedure.
Hong Kong is keen on forming more CDTAs with its investment and trading partners in an attempt to further expand its CDTA network.
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