On 25 September 2019, the Secretary for Financial Services and the Treasury of Hong Kong and the Minister of Finance of Estonia signed a comprehensive avoidance of double taxation agreement (CDTA) in Tallinn, Estonia.

The agreement sets out the allocation of taxing rights between the two jurisdictions, enabling investors to better assess their potential tax liabilities from cross-border economic activities. Under the CDTA, any Estonian tax paid by Hong Kong residents in respect of income derived from sources in Estonia 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 Estonian residents, double taxation will be avoided by way of exemption of the income taxed in Hong Kong from the Estonian tax, or deduction of Hong Kong tax paid from the Estonian tax in respect of the same income.

  Moreover, the comprehensive avoidance of double taxation agreement (CDTA) provides the following tax relief arrangements:

 (a) Estonia’s withholding tax rate for Hong Kong residents on royalties will be capped at 5 per cent while the current rate is at 10 per cent;

 (b) Hong Kong airlines operating flights to and from Estonia will be taxed at Hong Kong’s profits tax rate, and will not be taxed in Estonia; and

 (c) Profits from international shipping transport earned by Hong Kong residents arising in Estonia will not be taxed in Estonia.

The CDTA will come into force after the completion of ratification procedures by both sides. In the case of Hong Kong, the CDTA will be implemented by way of an order to be made by the Chief Executive in Council under the Inland Revenue Ordinance (Cap. 112).