Saudi Arabia and Hong Kong Enter Into Double Tax Agreement

Hong Kong has signed a double tax agreement with Saudi Arabia. The agreement was signed by Mr. James Lau on behalf of Hong Kong on 24th August 2017. The agreement brings to fore the relentless efforts by Hong Kong Special Administrative of China to help businesses and other jurisdictions effect tax avoidance legislations. 

Saudi-Hong Kong DTA an anchor for cross-border trade

The Saudi-Hong Kong agreement draws the allocation of taxing rights for the two jurisdictions. This will help entrepreneurs and startups evaluate their tax liabilities for their cross-border operations. The pact is the 38th CTDA (comprehensive agreement for the avoidance of double taxation) that Hong Kong has entered with other jurisdictions.

Under the pact, double taxation will get avoided in the following ways.

  • Tax paid by any Hong Kong company to Saudi Arabia will be considered a credit against the payable tax in Hong Kong on the same profit. Note that this will be subject to provisions of law in Hong Kong.
  • In the same way, Saudi companies taxes made to Hong Kong Inland Revenue Department will be exempted from the payable tax in Saudi Arabia.

In addition to the outlined arrangements, the pact between Saudi and Hong Kong comes with these tax relief measures;

  1. The Saudi withholding tax rate that has been 15% for Hong Kong residents has reduced and capped at 8%. This will be brought further down to 5% if the royalties under consideration are for commercial, scientific, or industrial purposes.
  2. The Hong Kong airlines operating to Saudi Arabia will now be taxed at Corporations tax rate in Hong Kong. The airlines will no longer be taxed for their flights in Saudi.
  3. Any profit generated from international shipping transport business by Hong Kong residents operating in Saudi Arabia will now be exempted from any tax liability.

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The DTA agreement anchored on Hong Kong CRS Framework

While the agreement between Hong Kong and Saudi Arabia mainly focused on avoiding double taxation, it was guided by the recent Hong Kong Framework on Common Reporting Standards (CRS). CRS is a framework that was passed by OECD members in 2014 to help address the problem of tax avoidance.

The CRS framework borrowed strongly from the United States FATCA (Foreign Tax Compliance Act). Under the framework, all jurisdictions that sign it are required to implement Automatic Exchange of Financial Accounting Information for reporting accounts.

In June 2016, Hong Kong passed the CRS Hong Kong Framework that embedded the CRS in law. This was part of the law that guided Hong Kong when drafting the DTA agreement with Hong Kong. Under the CRS Hong Kong framework, the accounting information for all reporting accounts can only be shared if the other jurisdiction has entered into a TIEA (Tax Information Exchange Agreement) or a CTDA (Comprehensive Double Tax Agreement) with Hong Kong.

This means that in addition to enjoying better tax arrangements, both countries will now go full throttle in capturing and exchanging financial information of all reportable accounts as provided under CRS.

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