Double Tax Agreement between Malaysia and Hong Kong: What You Need to Know
Malaysia and Hong Kong have a longstanding economic and trade relationship. To strengthen this relationship, both countries have entered into a Double Tax Agreement (DTA) that aims to prevent double taxation of income and encourage investment flow. In this article, we will discuss the key provisions of the DTA between Malaysia and Hong Kong and its impact on businesses.
Scope of the Agreement
The DTA between Malaysia and Hong Kong covers taxes on income and includes the following:
– In Malaysia: income tax, petroleum income tax, and real property gains tax (RPGT)
– In Hong Kong: profits tax and salaries tax
Residents and Permanent Establishments
Under the DTA, a resident of one country is defined as a person who is subject to tax in that country by reason of their domicile, residence, place of management, or any other criterion of a similar nature. A permanent establishment (PE) is a fixed place of business through which an enterprise carries out its business in a country.
If a resident of one country has a PE in the other country, the income derived from that PE is taxable only in the country where the PE is situated. However, if the resident doesn`t have a PE, the income they derive from the other country is taxable only in their home country.
Dividends, Interest, and Royalties
The DTA provides for reduced withholding tax rates on dividends, interest, and royalties. The withholding tax rate on dividends is 15% if the beneficial owner is a company that holds at least 10% of the voting power of the company paying the dividends. Otherwise, the rate is 10%. The withholding tax on interest and royalties is 10%.
Capital Gains
Under the DTA, gains derived by a resident of one country from the sale of shares or comparable interests in a company that is resident in the other country are taxable only in the country where the seller is resident. However, gains derived from the disposal of immovable property are taxable in the country where the property is situated.
Elimination of Double Taxation
The DTA provides for the elimination of double taxation in two ways:
– Relief method: The country of residence grants relief by allowing the resident to deduct the tax paid in the other country from their own tax liability on the same income.
– Credit method: The country of residence grants relief by allowing the resident to take credit for the tax paid in the other country against their own tax liability on the same income.
Conclusion
The DTA between Malaysia and Hong Kong promotes investment and trade by providing certainty to businesses on their tax obligations. By preventing double taxation, the DTA reduces the tax burden on businesses, making cross-border investments more attractive. Businesses operating between Malaysia and Hong Kong should take advantage of the DTA to reduce their tax liabilities.
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