Hong Kong’s Double Taxation Avoidance Agreements

Hong Kong has established Double Taxation Agreements (DTAs) with various nations to prevent double taxation and financial misconduct. These agreements promote cooperation with global tax authorities, impacting residents of Hong Kong and partner countries.

Contributing Advisor

Jennifer Lu

Partner

Critical points of Hong Kong's DTAs:

• Eliminate double taxation from overlapping tax jurisdictions.
• Clarify tax rules for international transactions.
• Resolve conflicts over taxpayer residence and income source.
• Provide avenues to address taxation issues.
• Prevent income flow tax avoidance.
• Enhance investment, trade, and personnel movement by reducing foreign withholding tax rates.

Double taxation occurs when income or profits are subject to taxation in multiple jurisdictions, leading to the same earnings being taxed more than once. Hong Kong residents do not face this issue and typically do not experience double taxation.

Double taxation agreement network

Double taxation, where income or profits are taxed in multiple jurisdictions, can create complex financial burdens. However, Hong Kong has established a unique taxation framework known as the territoriality basis, where only income or profit generated within its borders is subject to taxation. Income derived from sources outside Hong Kong by residents is generally exempt from tax. Therefore, Hong Kong residents typically avoid the specter of double taxation.

Hong Kong has been actively seeking to expand its Free Trade Agreement (FTA) network to secure favorable conditions for its goods and services to enter the mainland and international markets.

Hong Kong has signed eight FTAs:

• The Mainland of China (June 2003);
• New Zealand (March 2010);
• The Member States of the European Free Trade Association (EFTA) (June 2011);
• Chile (September 2012);
• Macau (October 2017);
• The Association of Southeast Asian Nations (ASEAN) (November 2017);
• Georgia (June 2018);
• Australia (March 2019); and
• Peru (November 2024).

Hong Kong is currently negotiating investment agreements with Saudi Arabia, Bangladesh, Egypt, and Peru. Additionally, efforts are underway for Hong Kong's early accession to the Regional Comprehensive Economic Partnership (RCEP). 

Effective from March 1, 2025, the Second Agreement Concerning Amendment to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) Agreement on Trade in Services introduces new liberalization measures across several service sectors. These measures aim to enhance market access for Hong Kong businesses in Mainland China. 

The recent CEPA amendments allow Hong Kong businesses to adopt local laws and arbitration services for their operations in Mainland China, providing greater legal certainty and flexibility.

Mainland China and Hong Kong CEPA

The Mainland and Hong Kong Closer Economic and Partnership Arrangement (CEPA) holds significant importance. It provides expansive opportunities for Hong Kong’s goods and services, further enhancing the economic cooperation and integration between the Mainland and Hong Kong.

CEPA follows a progressive building block approach, with both sides collaboratively introducing ongoing liberalization measures.

Despite Hong Kong's integration with China, variations exist in terms of tariffs, duties, and Hong Kong's status as a Free Port. Mainland China and Hong Kong established CEPA in 2003 to address these distinctions. CEPA is an evolving Free Trade Agreement (FTA), continually expanding its scope and content.

CEPA encompasses four broad areas:

Trade in goods

Trade in goods has been fully liberalized. Hong Kong’s products that fulfill the CEPA rules of origin (ROO) requirements can enjoy zero-tariff treatment upon importation into the mainland.

Trade in services

Substantial progress has been made in liberalizing service trade between the Mainland and Hong Kong. Businesses and individuals in Hong Kong's service sectors can leverage preferential arrangements to conduct and expand their operations in most Mainland sectors.

Investment

Hong Kong investments and investors enjoy investment protection and facilitation in the mainland.

Economic and technical cooperation

The two sides have agreed to enhance economic and technical cooperation in various areas to cater for and support the development between the two places and promote collaboration in the financial and trade zones of the Belt and Road Initiative and Sub-regional Cooperation.

Hong Kong - New Zealand CEPA

The Hong Kong-New Zealand Closer Economic Partnership Agreement is Hong Kong's first FTA with a foreign economy and the second FTA following the Closer Economic Partnership Arrangement with Mainland China.

New Zealand was Hong Kong's 42^nd largest trading partner in 2022, with merchandise trade amounting to HK$7.7 billion (US$984 million) in 2022. Regarding services trade, New Zealand was Hong Kong's 37th largest trading partner in 2021, with bilateral services trade amounting to HK$1.1 billion (US$140 million).

The CEP Agreement is a comprehensive and high-quality FTA that is entirely consistent with the rules of the World Trade Organization. It comprises trade liberalization measures for trade in goods and services between the two signatories.

Hong Kong and the member states of the EFTA FTA

Hong Kong and the Member States of the European Free Trade Association States, namely Iceland, Liechtenstein, Norway, and Switzerland, signed a comprehensive FTA in Liechtenstein on June 21, 2011. This agreement is Hong Kong's first FTA with the European economies.

It is an essential milestone in Hong Kong's trade relations with the four EFTA states.

The agreement covers trade in services and goods, investment, and other trade-related issues, such as intellectual property protection.

The European Free Trade Association (EFTA), taken as a single entity, was Hong Kong's 16th-largest trading partner, with merchandise trade between the EFTA and Hong Kong amounted to HK$80.9 billion (US$10.3 million) in 2022. The EFTA was the 14^th largest trading partner for services, with bilateral services trade totaling HK$13.5 billion (US$1.7 million) in 2021.

Hong Kong and Macao CEPA

Macao was Hong Kong’s 18^th-largest trade-in goods partner in 2021, with bilateral trade between these two economies amounting to HK$69.5 billion (US$8.8 million). Further, Macao ranked 21^st among Hong Kong’s trade-in service partners in 2021, with a total bilateral trade of approximately HK$5.1 billion (US$652,402).

Macao also played a significant role as the 17th major source of inward direct investment (IDI) into Hong Kong at the end of 2021. The total stock of IDI from Macao to Hong Kong was HK$38.4 billion (US$4.9 million). Furthermore, Macao was the 12th major destination for outward direct investment (ODI) from Hong Kong, with the stock of ODI in Macao amounting to HK$97.6 billion (US$12.4 million) at the end of 2021.

These figures underscore the significant economic bonds between Hong Kong and Macao, with robust trade and investment activities playing a pivotal role in strengthening their bilateral relations.

ASEAN-Hong Kong FTA and Investment Agreement

The AHKFTA and AHKIA cover goods, services, investment, cooperation, dispute resolution, and more. They benefit trade partners and foreign investors in Hong Kong, mainland China, and ASEAN, fostering trade and investment growth.

ASEAN nations must reduce customs duties on Hong Kong goods, cutting costs for Hong Kong businesses and boosting competitiveness globally.

Hong Kong’s service sector gains in professional, business, telecom, and construction services. The investment agreement ensures fair opportunities in ASEAN countries, with compensation for unforeseen losses.

Hong Kong, a key hub for global trade and services to mainland China and ASEAN, strengthens its role with the FTA, attracting foreign investors and ASEAN SMEs.

ASEAN ranks Hong Kong second in merchandise trade in 2022 and fifth in services trade in 2021, with HK$1.2 billion (US$153,503) in merchandise trade in 2022 and HK$101.1 billion (US$12.9 million) in services trade in 2021.

Hong Kong and Georgia FTA

The FTA, which entered into force on February 13, 2019, aims to enhance trade and investment flows between the two regions by providing legal certainty and better market access. It covers various areas, including trade in goods and services, investment, and dispute settlement.

Under the agreement, Georgia will eliminate import tariffs on 96.6 percent of its tariff lines for Hong Kong's products, while Hong Kong will grant tariff-free access to all products originating from Georgia. The FTA also establishes provisions for customs cooperation, technical barriers to trade, and sanitary measures, along with commitments regarding trade remedies such as anti-dumping and countervailing measures. Overall, the agreement serves as a strategic gateway for Hong Kong to access the Caucasus region and aligns with the Belt and Road Initiative.

Hong Kong and Australia FTA

Under the HKAFTA, a reciprocal elimination of import tariffs will be enforced on all goods from Australia and Hong Kong. Some goods, such as consumables, can now enter the market via simplified procedures.

Financial, professional, accounting, engineering, construction, education, transport, and logistics providers are now guaranteed market access and treatment similar to local service provider counterparts under like circumstances.

The HKAFTA also allows deeper financial ties to be forged, as Australian banks in Hong Kong have access to streamlined establishment requirements in Hong Kong.

Moreover, business travel will be made easier through the agreement as temporary entries may be granted to Hong Kong and Australian business travelers to improve the ease of business in each location.

The HKAFTA aims to safeguard many of the liberal trade policies currently adopted by Hong Kong and Australia and commits both economies to eliminate all tariffs. It will bring relief to manufacturers, suppliers, and businesses alike.

Hong Kong and Chile FTA

Chile ranked as Hong Kong’s 3rd largest trading partner in Latin America in 2021, with the total bilateral merchandise trade reaching HK$20.9 billion (US$2.6 million).

The trade agreement between Chile and Hong Kong covers various aspects such as trade in goods and services, investment, and other related areas. Remarkably, it marks the first Free Trade Agreement (FTA) between Hong Kong and a South American economy, presenting promising opportunities for Hong Kong businesses to access the Chilean market, both an emerging market and a gateway to the broader South American region.

This FTA also extends Hong Kong’s FTA network to the American region, complementing its connections with the Asia-Pacific and European regions.

Alongside the FTA, Hong Kong and Chile have signed a separate Memorandum of Understanding (MoU) on Labor Cooperation. This MoU addresses labor-related matters of mutual interest between the two nations, further enhancing their bilateral relations.

Hong Kong and Peru FTA

Peru is a significant trading partner for Hong Kong in Latin America, ranking fifth among its merchandise trading partners in the region with a bilateral trade value of HK$5.2 billion in 2023.

The FTA is comprehensive, covering trade in goods and services, investment, intellectual property, and dispute settlement, among other areas. Under the agreement, Peru will eliminate tariffs on 98.3 percent of its tariff lines for Hong Kong's goods, with most tariffs taking immediate effect upon the FTA's entry into force.

Conversely, Hong Kong will maintain its zero-import tariff regime for all goods originating from Peru. The FTA also establishes procedures for customs facilitation and cooperation on technical barriers to trade and sanitary measures, enhancing transparency and predictability in trade. Overall, the FTA aims to provide a favourable environment for Hong Kong traders and investors to expand into Peru and the broader Latin American markets.

Double Taxation Avoidance Agreements

Hong Kong has signed comprehensive DTAs with 51 countries and is negotiating agreements with 17 others. The DTAs specify the tax rates for dividends, interest, royalties, and technical fees these countries can charge Hong Kong residents. The methods for eliminating double taxation are outlined in each DTA or the country's domestic law, with the tax credit method being the most common.

Hong Kong's Double Taxation Agreement (DTA) network provides a mechanism to mitigate the challenge of double taxation faced by global investors. Hong Kong follows a territoriality-based taxation system, taxing only income/ profit sourced in Hong Kong, thus avoiding double taxation for its residents.

Additionally, Hong Kong offers unilateral tax credit relief to its residents who operate businesses in other countries, ensuring they avoid issues with double taxation.

Furthermore, despite their worldwide taxation approach, many countries provide their residents operating businesses in Hong Kong with unilateral tax credit relief. Hong Kong even allows a deduction for foreign taxes paid on income that is also subject to Hong Kong taxation. This system dramatically alleviates concerns about double taxation for businesses operating within the region.

Nevertheless, the Hong Kong SAR government acknowledges the value of entering into comprehensive Double Taxation Agreements (DTAs) with its trading partners. These agreements clarify tax rights, help investors assess potential tax liabilities for their economic activities, and serve as an enticing incentive for overseas and Hong Kong-based companies to engage in international business.

As of April 2025, Hong Kong has inked comprehensive DTAs with 51 countries and regions. In addition, Hong Kong is in the process of negotiating comprehensive DTAs with 18 countries or regions such as Germany, Norway, Cyprus, and Venezuela.

A unique challenge arises for airline operators due to the global nature of their operations, making them particularly vulnerable to double taxation. Recognizing the lengthy process of DTA negotiations, Hong Kong has adopted a policy of incorporating double taxation relief provisions for airline income into bilateral Air Services Agreements reached with aviation partners.

Shipping income is another area of concern. Hong Kong is actively negotiating double taxation relief for shipping income, particularly with jurisdictions that do not offer reciprocal tax exemptions or prefer bilateral agreements despite having such provisions. Some agreements even encompass both airline and shipping income.

Hong Kong’s onshore-offshore tax regime has garnered attention for its potential to reduce tax burdens by pricing intra-group transactions within Hong Kong companies. However, this has attracted increased scrutiny from the Hong Kong Inland Revenue Department (IRD) in recent years.

In response, the government introduced the Advance Pricing Arrangement (APA) program in 2012. This program, seen as a positive step for multinational companies, allows taxpayers to engage with tax authorities transparently and non-adversarially to achieve an optimal tax outcome. Notably, Hong Kong can only initiate an APA program with another country after signing a DTA with that country, further emphasizing the importance of these international agreements.

List of DTA agreements

Hong Kong has signed comprehensive DTAs with 51 countries or regions. In addition, Hong Kong is negotiating comprehensive DTAs with 18 countries or regions, such as Germany, Norway, Cyprus, and Turkey.

Countries and Regions with DTAs Under Negotiation with Hong Kong

Tax rates for dividends, interest, royalties, and technical fees under DTAs

The following table shows the maximum tax rates those countries/regions with Comprehensive DTAs with Hong Kong can charge a Hong Kong resident on payments of dividends, interest, royalties, and technical fees.

Double taxation elimination methods

The methods of eliminating double taxation are stipulated in the specific DTA or a country’s domestic law.

Tax credit method

In most treaties signed by Hong Kong, residents can avoid double taxation through a tax credit.

Under the credit method, Hong Kong SAR shall grant credit for the tax paid in a foreign jurisdiction outside of Hong Kong regarding income derived by a person who is a resident of the Hong Kong SAR from sources of that foreign jurisdiction.

However, the credit should not exceed the amount of Hong Kong SAR’s tax computed for that income following the tax laws.

Tax exemption method

In addition to tax credit relief, double taxation can be eliminated by tax exemption methods, reduced tax rates, as well as relief by deductions. However, these methods are not used as commonly as the tax credit method.

Who can enjoy the benefits of DTAs?

Under most DTAs, only Hong Kong residents can claim tax benefits under the comprehensive DTAs. Taxpayers should refer to the protocol of the relevant DTA to check whether they qualify as Hong Kong residents.

In general, the following individuals can be regarded as Hong Kong Residents and thus can enjoy DTA benefits:

• Individual who ordinarily resides in Hong Kong;
• 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; and
• Company/partnership/trust/body of persons incorporated or constituted outside Hong Kong but managed or controlled in Hong Kong.

Applying for Certificate of Resident Status

A Certificate of Resident Status is a document issued by the competent authority of the Hong Kong SAR to a resident who requires proof of resident status to claim tax benefits under the comprehensive DTA.

The Certificate of Resident Status should constitute sufficient proof of the resident status of a Hong Kong resident. The competent authority of Hong Kong will issue a Certificate of Resident Status after the DTA between Hong Kong and the relevant jurisdiction has become effective.

Applicants should be aware that a Certificate of Resident Status issue will not guarantee that they will succeed in their claim to benefits under the relevant DTA. It will be up to the treaty partner to determine whether all the applicable conditions are fulfilled and benefits can be granted.

To apply for the Certificate of Resident Status, the applicant needs to complete the appropriate form:

The completed form should be sent to the Tax Treaty Section of the IRD, and a Certificate of Resident Status shall be issued within 21 working days after receipt of a properly completed application. If further information is needed or the application cannot be accepted, a notification of decision by the assessing officer will be given within the timeframe.

For applications related to the DTA between Mainland China and Hong Kong, a CoRS issued for a specific calendar year generally serves as proof of Hong Kong resident status for that year and the two succeeding calendar years.

Advance Pricing Agreements

Hong Kong’s onshore-offshore tax regime often reduces the tax burden for those who operate through Hong Kong companies by pricing intra-group transactions. This has led to heightened transfer pricing scrutiny from the Hong Kong Inland Revenue Department in recent years.

Consequently, the Advance Pricing Arrangement (APA) program was introduced to Hong Kong. It was widely regarded as a welcome development for multinational companies, as it offers a non-adversarial approach in which taxpayers can transparently engage with tax authorities to achieve an optimal tax outcome.

An APA is an agreement that determines an appropriate set of criteria (e.g., transfer pricing method, external data, reasonable adjustments, critical assumptions as to future events) to determine the pricing of related party transactions over a fixed period. This is either three or five years.

Hong Kong can only start an APA program with another country after signing a DTA with the concerned country.