Hong Kong has signed a comprehensive double taxation agreement (DTA) with South Africa with the aim of preventing tax evasion and double taxation. The DTA also includes provision for the exchange of tax information between the two governments.
Before the conclusion of this DTA, Hong Kong companies that conducted their business through a permanent establishment in South Africa could be taxed in both jurisdictions on the Hong Kong sourced income. To avoid such double taxation the DTA provides that in such circumstances the company will be taxed in South Africa and the tax paid will be allowed as a tax credit against any tax payable in Hong Kong with a reciprocal arrangement in South Africa for tax paid in Hong Kong.
The DTA reduces or introduces a cap on the withholding taxes levied by South Africa on Hong Kong residents. The withholding tax on dividend will be cut from 15% to 5% or 10% depending on the size of the shareholding, withholding tax on interest will be capped at 10%, with withholding tax on royalties capped at 5% a reduction to its present level of 15%.
Profits earned by Hong Kong residents from international shipping transport that are currently taxed in South Africa will no longer be taxed in South Africa. A similar provision has been included for corporation tax on airline flights.
The DTA provides for the exchange of information as relevant to carry out the provisions of the DTA and for the administration and enforcement of the parties domestic laws. There is a requirement to maintain the confidentiality of disclosed information and an obligation to obtain the information requested by the other party.
Hong Kong’s Secretary for Services and Treasury, Professor K Chan, welcomed the execution of the DTA which clearly allocated taxation rights between the jurisdictions to enable investors and companies to assess potential tax liabilities from cross-border trade. It is expected that the signing of the DTA will strengthen the economic and business links between the jurisdictions and incentivise enterprises in either region to invest and do business in the other.
The signature of this agreement with S Africa brings to 31 the number of DTA’s executed by Hong Kong. It will come into force after ratification by both sides which is expected in the near future.
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