Double Taxation between Macao and Hong Kong Arrangement In Force

26 August 2020

The Comprehensive Avoidance of Double Taxation Arrangement between Hong Kong and Macao (“CDTA-HK/MC”) is the latest of Hong Kong 43 international taxation agreements. It has entered into force on 18 August 2020. It will be applied in Macao and Hong Kong as from 1 January 2021 and 1 April 2021 respectively. This agreements follows a deferral of payment of withholding tax on investment profits agreed with Mainland China in 2018.

 

General Stipulations

 

The CDTA-HK/MC stipulates, amongst others, the taxing rights of each jurisdiction (i.e. Hong Kong and Macao) on the relevant income, the methods for elimination of double taxation and the mutual agreement procedure.

This can give a greater degree of certainty on the tax liabilities of taxpayers engaging in the cross-border activities (e.g. a Hong Kong tax resident working/carrying out business activities in Macao, or vice versa).

In addition, taxpayers are eligible to double taxation relief/credit pursuant to the DTA-HK/MC, provided that certain conditions can be met. Moreover, the Hong Kong withholding tax rate in respect of royalty fees paid to unrelated non-resident corporations can potentially be reduced from the standard rate of 4.95% to a preferential rate of 3% under the DTA-HK/MC.

 

Double Taxation Macao Benefits

 

Under the arrangement, any Macao tax paid by Hong Kong residents in respect of income derived from sources in Macao will be allowed as a credit against the Hong Kong tax payable on the same income, subject to the provisions of the tax laws of Hong Kong.

For Macao residents, double taxation will be avoided by way of exemption of the income taxed in Hong Kong from the Macao tax, or by crediting the Hong Kong tax paid against the Macao tax payable in respect of the same income.

According to government sources, Macao was the 19th largest trading partner of Hong Kong in 2019. The agreement should help the promotion of bilateral trade and investment activities as part of the Greater Bay Area project.

Our firm HKWJ Tax Law & Partners Limited can provide further advice on the application of the DTA-HK/MC for Macao and Hong Kong residents. We can analyse the tax exposures of the corporations/individuals concerned and explore whether any tax benefits/relief can be obtained by applying the DTA-HK/MC.

If you have any questions regarding the above or other tax matters, please do not hesitate to contact us on +852 2804 0889 or by email [email protected].
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