Hong Kong: Double Tax Treaties
Other International Agreements
The EU Savings Tax Directive
The European Union is persisting in its attempts to convince Asian financial centres to cooperate on the issue of information-sharing for tax purposes, although the EU's pleas continue to fall upon deaf ears.
Thomas Roe, the European Commission's envoy to Hong Kong and Macau, approached the two governments in November, 2006, after Hong Kong and Singapore refused to discuss the possibility of their inclusion in the EU Savings Tax Directive. Further representations to the governments of Hong Kong and Singapore by then European Commissioner for Taxation, Laszlo Kovacs, in early 2008 as part of a review into expanding the directive's scope also ended in failure.
While the EU is very keen to tax the savings and investments that European residents have shifted to Asia to escape the clutches of the directive, the Asian financial hubs are unlikely to want to sign up to anything that would compromise their status as low tax and lightly regulated jurisdictions.
In the case of Hong Kong, signing up to the savings tax directive could mean altering the Basic Law which safeguards the future of its financial centre under Chinese rule.
China Legal Services Agreement
In October 2010, Hong Kong’s Secretary for Justice, Wong Yan Lung, and mainland China's Vice Chairman of the China Council for the Promotion of International Trade, Dong Songgen, signed a bilateral cooperation arrangement on legal services for commercial matters and arbitration.
The arrangement strengthens information exchanges and collaboration in organizing conferences on legal services and related activities. It will help enterprises in both places provide training in commercial and arbitration law to encourage the establishment of better risk management and dispute resolution mechanisms for commercial matters.
The Hong Kong/China Closer Economic Partnership Arrangement
The CEPA is an ongoing project and dozens of goods and services traded between Hong Kong and mainland China have been liberalized since 2004. After signing the first CEPA agreement in June 2003 for implementation in 2004, the Central and Hong Kong governments have signed several yearly Supplements, with the ninth phase of CEPA liberalisation measures by virtue of Supplement IX due to be implemented in January 2013. Including the measures in Supplement IX, the two sides have so far announced 338 liberalization measures in 48 service sectors. The number of goods eligible for CEPA’s tariff-free treatment has expanded from 273 on January 1, 2003, to over 1,600 in 2012.
Supplement IX was signed on June 29, 2012, by Hong Kong’s Financial Secretary, John C Tsang, and the Chinese Vice-Minister of Commerce, Jiang Yaoping, and provides for a total of 43 services liberalization and trade and investment facilitation measures, strengthens co-operation in areas of finance, trade and investment facilitation, and further promotes the mutual recognition of professional qualifications in the two places.
Under Supplement IX, market access conditions will be further relaxed in 21 existing sectors, including legal, accounting, construction, medical services, computer and related services, placement and supply services of personnel, printing, telecommunications, audiovisual, distribution, banking and securities, and tourism.
In addition, in banking and securities, Hong Kong banks will now be permitted to offer custodian services regarding settlement funds of customers of securities companies and margin deposits on futures transactions; and Hong Kong securities companies that satisfy the qualification requirements as foreign shareholders of foreign-invested securities companies, and Mainland securities companies that satisfy the requirements for establishing subsidiaries, will be allowed to set up equity joint venture securities investment advisory companies on the Mainland.
With regard to financial co-operation under the new Supplement, the Mainland will amend and improve the relevant requirements for overseas listing to support Mainland enterprises that satisfy Hong Kong's listing requirements in listing in Hong Kong, and create favourable conditions for Mainland enterprises, especially small- and medium-sized enterprises, to raise capital through direct listing in overseas markets.
Furthermore, the Chinese government will actively explore ways and means to deepen co-operation between the commodity futures markets on the Mainland and in Hong Kong, to lower the eligibility requirements for Hong Kong's financial institutions to apply for Qualified Foreign Institutional Investor status in order to facilitate Hong Kong's long-term capital investing in the Mainland's capital markets, and to support qualified Hong Kong financial institutions in setting up fund management companies and futures companies on the Mainland.
HK-EFTA Free Trade Agreement
Hong Kong and the member states of the European Free Trade Association (EFTA), namely Iceland, Liechtenstein, Norway and Switzerland, signed a free-trade agreement on June 21, 2011, marking an important milestone in trade relations between both sides.
The deal is Hong Kong’s first free-trade agreement with the European economies. It covers trade in services and goods as well as investment, and other trade-related issues such as protection of intellectual property. It is fully consistent with the provisions of the World Trade Organisation.
Under the Agreement, the EFTA States will eliminate tariffs on all industrial products as well as fish and certain marine products originating in Hong Kong. Processed agricultural products of Hong Kong origin will also enjoy tariff concessions when imported into the EFTA States.
On trade in services, Hong Kong service providers and the services they provide will enjoy better business opportunities and legal certainty in market access as well as non-discriminatory treatment in the EFTA States markets in a wide range of service sectors. These encompass areas in which Hong Kong has traditional strengths, such as telecommunications services, financial services, logistics services including maritime transport services, audiovisual services, and various professional and business services. They also include areas identified with potential for further development in Hong Kong, namely education services, environmental services, medical services, innovation and technology, cultural and creative industries, and testing and certification services.
In terms of market access, there will not be any restrictions on foreign capital, the number of service providers or operations, the value of service transactions, the number of persons employed, types of legal entity or joint venture requirements for various service sectors in the EFTA States markets. For some service sectors where such requirements have to be in place for regulatory or other reasons, the requirements will not become more restrictive than the level agreed in the Agreement. Hong Kong service providers and the services they provide in a wide range of sectors will be treated no less favourably than their counterparts in the EFTA States as well as other economies under similar circumstances.
To facilitate movement of business persons, without compromising legitimate immigration control, business visitors, intra-corporate transferees, installers or maintainers, contractual service suppliers and independent professionals of Hong Kong will be granted temporary entry into the relevant EFTA States in accordance with the commitments of individual EFTA States.
To facilitate mutual investment flows and expand related economic activities, the Agreement provides investors in non-service sectors with legal certainty on national treatment, facilitates their temporary entry into and stay in the EFTA States, and provides them with safeguards on movement of capital and other aspects. These complement the Agreement's provisions on trade in services.
To enjoy the preferential tariff treatment granted under the Agreement for exporting Hong Kong goods to the EFTA States, Hong Kong traders need to comply with the preferential rules of origin and fulfil the relevant requirements.
The part of the Agreement involving Hong Kong and Iceland, Liechtenstein, and Switzerland will enter into force on October 1, 2012, while the part involving Hong Kong and Norway will enter into force on November 1, 2012.
Total bilateral merchandise trade between Hong Kong and the European Free Trade Association states amounted to HKD76bn in 2010. The average annual growth rate was 13.8% from 2006 to 2010.
Total bilateral trade in services amounted to about HKD10bn in 2009. The average annual growth rate was 8.2% from 2005 to 2009.
The text of the agreement can be found on the Hong Kong Trade and Industry Department website.
Hong Kong’s closer economic partnership agreement (CEPA) with New Zealand, which was signed in March 2010, entered into force on January 1, 2011.
The CEPA was Hong Kong's first free trade agreement with another country, and the second following that with the Mainland of China. Under the CEPA, liberalization measures on both trade in goods and services will be introduced, and the two sides will also work on strengthening bilateral trade and economic ties by facilitating investment and movement of business persons.
Under the CEPA, New Zealand will phase out over six years its import tariffs on all goods originating from Hong Kong. Over 90% of New Zealand's tariff lines will become duty free within two years after the agreement has entered into force.
On trade in services, Hong Kong service providers and the services they provide will enjoy secured preferential opportunities in the New Zealand market in a variety of service sectors. These include logistics and related services, audiovisual services, various business services, computer and related services, maritime transport services, management consulting services and services incidental to manufacturing.
In terms of market access, there will not be any restrictions in the form of limitations on foreign capital, number of service providers or operations, value of service transactions, number of persons employed, types of legal entity or joint venture requirements in a variety of service sectors in the New Zealand market. Hong Kong service providers and the services they provide in a wide range of sectors will be treated no less favourably than their New Zealand counterparts in similar circumstances.
To further enhance bilateral investment flows, the two sides have also agreed to negotiate an investment protocol to the CEPA, with a view to concluding the investment negotiations within two years after it has entered into force.
ASEAN-China Free Trade Agreement
In November 2011, Hong Kong made a formal request to join the Association of Southeast Asian Nations (ASEAN)-China Free Trade Area (ACFTA).
Bilateral trade between ASEAN countries and China amounted to some US$360bn in 2011, and has been growing rapidly. A significant portion of this trade was physically routed through Hong Kong, or was arranged or financed by Hong Kong.
During a recent speech, Hong Kong's Director-General of Trade and Industry, Kenneth Mak, said that Hong Kong's participation in the ACFTA “will improve the efficiency of such trade, and more generally the flow of capital, entrepreneurship, technology and people within the region, enhancing the overall competitiveness of the ACFTA. This will be a win-win situation for all of us.”
“At present,” he added, “Hong Kong adopts a policy of zero import tariffs and has few restrictions on services trade and foreign direct investment. Hong Kong's participation in the ACFTA will bring legal certainty of such policies to ASEAN enterprises selling their goods and services to Hong Kong, or investing in Hong Kong.”
“By the same token,” he continued, “with the investment promotion and protection provisions in the ACFTA, Hong Kong investors will have an even greater incentive to channel more investments into the ASEAN region, creating more jobs and contributing to economic development in the host countries, particularly the relatively lesser developed ASEAN member states.”
Mak confirmed that Hong Kong was the world's fifth largest and Asia's second largest provider of foreign direct investment in 2011, with total outflow of direct investments from Hong Kong amounting to US$82bn. Mak predicts that the proportion of such investments going into the ASEAN region will increase significantly after Hong Kong becomes a party to the ACFTA.
As an important platform for trade and investment between ASEAN and China, Hong Kong's entry into the ACFTA should also strengthen its intermediary role, with more than 3,700 multinational companies having set up their regional headquarters or regional offices in Hong Kong, and, being a global financial hub and the pre-eminent offshore renminbi centre, Mak believes that Hong Kong can provide high-quality financial and management services between ASEAN, China and the rest of the world.