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Super-connector role of Hong Kong – New double tax agreement with Saudi Arabia

Hong Kong has recently signed a comprehensive avoidance of double taxation agreement (CDTA) with Saudi Arabia. This brings the number of CDTAs Hong Kong has concluded with other jurisdictions to 38. It is expected that Hong Kong will sign more and more CDTAs with other jurisdictions and in particular, with the Belt and Road countries (e.g. Saudi Arabia). The CDTA with Saudi Arabia contains favorable provisions which are expected to facilitate closer economic ties between Hong Kong and Saudi Arabia. The CDTA will only come into force in the tax year following the calendar year in which the relevant ratification procedures are completed. If the ratification procedures can be completed in 2017, the CDTA shall become effective in Hong Kong for any year of assessment beginning on or after 1 April 2018; and shall become effective in Saudi Arabia for any tax period beginning on or after 1 January 2018.

Among other favorable provisions, the CDTA between Hong Kong and Saudi Arabia contains the following preferential withholding tax rates on certain passive incomes received by a Hong Kong resident from Saudi Arabia (if certain conditions are met):

 

CDTA rates

Domestic rates

Dividends 5% 5%
Interests 0% 5%
Royalties 5% / 8% 15%
Capital gains on share disposal 0% 20%

The above preferential withholding rates on interests and royalties received by a Hong Kong resident from Saudi Arabia will facilitate Hong Kong playing the role of super-connector, in terms of provision of finance, technical know-how, equipment etc. from Hong Kong in respect of infrastructure projects undertaken in Saudi Arabia, which is a strategic economy along the Belt and Road Initiative of mainland China.

 

 

 

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