India-Hong Kong Current Affairs

India, Hong Kong sign double tax agreement

India and Hong Kong have signed agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Hong Kong is former British colony and is special administrative region of China which enjoys a high degree of autonomy under which it has an independent taxation system. It is an important financial and trading partner of India and the absence of a treaty was seen hindrance in many ways.

Key Facts

This agreement will stimulate flow of investment, technology and personnel from India to Hong Kong and vice versa, prevent double taxation and provide for exchange of information between two contracting parties. It will also improve transparency in tax matters and will help curb tax evasion and tax avoidance.

It will provide investors advantage of lower withholding tax of 10% on interest or royalties provided they fulfil main purpose test which broadly checks that transaction is not entered specifically to avoid taxes. It will also provide for capital gains taxation of indirect transfers. It provides that gains from sale of shares of company deriving more than 50% of its value from property situated in country will be taxed in that country.

This agreement will give protection against double taxation to over 1,500 Indian companies and businesses that have presence in Hong Kong as well as to Hong Kong-based companies providing services in India.

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Cabinet approves Double Taxation Avoidance Agreement with Hong Kong

The Union Cabinet approved Agreement between India and Hong Kong, special administrative region of China for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to taxes on income.

The agreement will stimulate flow of investment, technology and personnel from India to HKSAR & vice versa. It will also prevent double taxation and provide for exchange of information between them. It will also improve transparency in tax matters and will help curb tax evasion and tax avoidance.

Background

The Section 90 of Income Tax (IT) Act, 1961 empowers Central Government to enter into agreement with foreign country or specified territory for avoidance of double taxation of income and for exchange of information for prevention of evasion or avoidance of income-tax chargeable under IT Act, 1961. This Agreement is on similar lines as entered into by India with other countries.

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