The Secretary for Financial Services and the Treasury, Mr James Lau, on behalf of the Government of the Hong Kong Special Administrative Region, signed a comprehensive agreement for the avoidance of double taxation (CDTA) with Saudi Arabia on 24 August 2017.

The agreement sets out the allocation of taxing rights between the two jurisdictions and will help investors better assess their potential tax liabilities from cross-border economic activities. This is the 38th CDTA that Hong Kong has signed with its trading partners.

Under the agreement, double taxation will be avoided in that any Saudi Arabian tax paid by Hong Kong companies will be allowed as a credit against the tax payable in Hong Kong on the same profits, subject to the provisions of the tax laws of Hong Kong. Likewise, for Saudi Arabian companies, the tax paid in Hong Kong will be allowed as a deduction from the tax payable on the same income in Saudi Arabia.

Moreover, the agreement provides the following tax relief arrangements:

(a) Saudi Arabia’s withholding tax rate for Hong Kong residents on royalties (currently at 15 per cent) will be capped at 8 per cent and it will be further reduced to 5 per cent if the royalties are for the use of, or the right to use, industrial, commercial or scientific equipment;

(b) Hong Kong airlines operating flights to Saudi Arabia will be taxed at Hong Kong’s corporation tax rate, and will not be taxed in Saudi Arabia; and

(c) Profits from international shipping transport earned by Hong Kong residents in Saudi Arabia will be exempted from tax liability.

The Hong Kong-Saudi Arabia CDTA has also incorporated an article on exchange of information, which enables Hong Kong to fulfill its international obligations on enhancing tax transparency and combating tax evasion.

The agreement will come into force after the completion of ratification procedures on both sides.