Hong Kong has signed several double tax avoidance and bilateral investment treaties with countries in the Middle East, helping to facilitate trade and investment and boost cooperation between the two regions. We provide an overview of the current HK investment treaties in place with countries in the Middle East and discuss how they help protect investments and facilitate business exchange.
Hong Kong is deepening trade and investment cooperation with countries in the Middle East, opening new opportunities for companies and investors in the region to gain a foothold in the vibrant city.
This cooperation is underpinned by a series of bilateral investment, trade, and tax treaties with countries in the region that guarantee fair taxation and protection of investments. In addition, several countries in the Middle East are members of the WTO, and trade and investment between the two regions are in some instances covered by multilateral treaties.
Below we provide an overview of the active bilateral and multilateral agreements between Hong Kong and Middle Eastern countries.
Hong Kong has active double taxation agreements (DTAs) with four countries in the Middle East, namely, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). It is also in the process of negotiating DTAs with Bahrain and Israel.
In all four of the DTAs, the taxes covered in Hong Kong are:
Hong Kong implements a two-tiered profits tax system:
However, for two or more connected entities, only one may elect the two-tiered profits tax rates. The rest of the entities shall still be taxed at 16.5 percent for corporations and 15 percent for incorporated businesses. Enterprises that already benefit from preferential tax regimes, such as the corporate treasury center regime, aircraft leasing regime, and others, are also excluded from the two-tiered profits tax regime.
Hong Kong implements a progressive salaries tax rate on “net chargeable income” or a standard salaries tax rate on “net income”.
Net chargeable income = total income – deductions – allowances
Net income = total income – deductions
Hong Kong’s property tax rate is 15 percent of the net assessable value of income arising from the letting of immovable property in Hong Kong.
Residency is defined slightly differently in the various DTAs. In the Kuwait, Qatar, and UAE DTAs, a Hong Kong resident is defined as:
In the Saudi DTA, the term “resident of a Contracting Party” is defined more broadly as “any person who, under the laws of that Contracting Party, is liable to tax therein by reason of his domicile, residence, place of incorporation, place of management or any other criterion of a similar nature”.
The definitions of “resident” in the four Middle Eastern countries are as below.
Hong Kong has currently signed bilateral investment treaties (BITs) with two countries in the Middle East: UAE and Kuwait.
Both BITs guarantee treatment to investors from the other party that is equal to that afforded to investors in their own country or region.
This treatment includes compensation for losses as a result of:
Under the BITs, investors are also guaranteed unrestricted rights to transfer their investments and returns abroad. These assets include:
The scope of investments that are guaranteed the right to transfer abroad is broader in the UAE BIT, with the explicit addition of:
All payments are also freely convertible under the BITs.
The BITs also outline dispute resolution mechanisms, which include submission of the dispute to a neutral international arbitration tribunal.
For more information on how investors can benefit from China’s BITs, see our article here.
In addition to the bilateral agreements discussed above, several Middle Eastern countries are members of the WTO. This, by extension, means that Hong Kong and these countries are party to several multilateral trade and investment agreements, which provide additional protection for trade and investment between the regions.
Middle Eastern countries that are WTO members include:
Multilateral treaties under the WTO include:
Hong Kong has recently taken steps to deepen trade and investment cooperation with the UAE by setting up its first economic and trade office (ETO) in Dubai in October 2021. The ETO will seek to promote trade and investment cooperation between Hong Kong and the Middle East, in particular the Gulf Cooperation Council (GCC) member countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE).
According to the ETO, key sectors for cooperation include new and traditional energy, smart cities, transportation, logistics, fintech, biotech, and jewelry, among others. The ETO has also invited governments and companies in the GCC to “make use of the logistical, architectural, financial, legal, accounting, management, and other professional services available by Hong Kong enterprises to reap the social and economic benefits from this unique regional cooperation initiative”.
Dezan Shira & Associate’s Dubai Office opens in September 2022. We will assist investors throughout the Middle East in understanding and investing in markets in China, ASEAN, and India. For information on investment opportunities for Middle Eastern companies in Hong Kong and help with market entry, you can contact us at firstname.lastname@example.org.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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