Hong Kong’s Comprehensive Double Taxation Agreement (“CDTA”) with the United Kingdom was signed on June 21, 2010. It is Hong Kong’s 12th CDTA.
Under the CDTA, dividends paid by a company will be exempt from tax, and dividends paid by a UK Real Estate Investment Trust will be subject to a withholding tax of 15% (previously 20%). Hong Kong residents receiving royalties and interest from the UK are subject to a current withholding tax rate of 20% respectively in the UK. Under the CDTA, the royalty withholding tax rate will be capped at 3% and the withholding tax on interest will be exempted.
Of particular relevance to Hong Kong expats returning to the UK is Article 17 of the CDTA, which provides that:
“Pensions and other similar remuneration (including a lump sum payment) arising in a Contracting Party and paid to a resident of the other Contracting Party in consideration of past employment or self-employment and social security pensions shall be taxable only in the first mentioned Party.”
This will enable Hong Kong expats planning to return to the UK to ensure that pensions payable by a Hong Kong company are structured in a tax-efficient manner.
The term “resident” is not a normal feature of Hong Kong tax legislation. However, since a liability to tax is dependent on the source of income (and, in the case of corporations, whether the corporation is also carrying on business in Hong Kong), it is interesting to note the definition given in Article 4.
The term “a resident of Hong Kong” means:
- an individual who ordinarily resides in Hong Kong,
- a person 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, or
- a company incorporated in Hong Kong and a company centrally managed and controlled in Hong Kong.
As with all treaties concluded in 2010 by Hong Kong, the CDTA with the UK incorporates the latest Organization for Economic Co-operation and Development standard on Exchange of Information.
