By Anas Almasri
A comprehensive Double Taxation Agreement (DTA) between the Hong Kong special administrative region government and the Maltese government was announced on November 8.
The treaty removes the dual taxing of income in both jurisdictions and also addresses fiscal evasion matters, primarily on income tax arising in HK. Hong Kong Secretary for Financial Services and the Treasury, Professor K C Chan, and Malta Ambassador to China, Joseph Cassar, signed the agreement.
The most recent tax exchange information standards issued by the Organization for Economic Co-operation and Development (OECD) were included in the DTA. The tax treaty is highly expected to boost investment levels between the two areas and encourage Maltese companies to enter the HK market, and vice versa.
Authorities on each end hope that by providing businesses with tax incentives, a larger number of firms will now choose to either increase their presence or open up new offices in the other jurisdiction.
The DTA aims to provide investors from both sides with a clearer understanding of their potential tax liabilities before they embark on cross-border investment activities. It maps out the allocation of taxing rights between HK and Malta, and the tax relief options on several types of passive income (an individual earnings from a business in which he/she is not actively involved).
Prior to this taxation agreement, any income earned bya Maltese national residing in HK was subject to both Hong Kong and Maltese income tax rates. Similarly, any Maltese enterprises undertaking business activities through a branch in HK were also taxed with both corporate tax rates.
Once it takes effect, the DTA will introduce a three percent withholding tax on royalties originating in HK but are Malta bound, while excluding any description on withholding tax rate for dividends or interest bound for Malta. As per the non-treaty rates, a 15 percent withholding tax is imposed on each of the three categories.
Companies paying taxes on their profits in Hong Kong will be allowed to credit that amount against their tax payable in Malta.
According to Maltese law, no taxes are withheld on payments involving dividends, royalties or income to HK residents.
Under the DTA, profits from international shipping transport earned in Malta by HK residents, which are currently taxed at Maltese tax rates, will no longer be asked to pay taxes. Hong Kong airlines that operate flights to Malta will be only taxed at HK corporate tax rate, which is lower than that of Malta.
The two parties have been involved in discussions and negotiations over the agreement since March 2011, and it will come into force after both governments finalize their respective ratification procedures.
This is the 22nddouble taxation agreement inked by HK with its trading partners. The most recent ones include DTAs with Spain (in April) and Czech Republic (in June).
More recently, Malta signed a Tax Information Exchange Agreement with Bermuda on November 25, and an earlier DTA with Turkey in July, taking its total number of tax agreements to almost 60 an impressive network for a low-tax jurisdiction.
