Double taxation relief
is secured between Hong Kong and Japan through a comprehensive double taxation agreement
. This bilateral document allows for the avoidance of double taxation
for individuals and/or companies that are residents of both jurisdictions and at the same time it serves as a tool for the prevention of fiscal evasion.
The provisions of the Hong Kong-Japan double tax treaty
Both Hong Kong and Japan impose taxes on the income derived by persons and companies on their territory. In order to avoid the taxation of income both in the country where it is produced and in the country where the individual or company usually resides, Hong Kong and Japan have agreed to sign a double tax treaty that clarifies the taxation method on income.
The taxes for which the treaty applies in the case of Hong Kong are the profits tax
, the salaries tax, and the property tax. For Japan, the double tax treaty applies for the income tax, the corporate tax, and the local inhabitant taxes.
This treaty is useful both for Hong Kong employees
who are dispatched to work in Japan for a longer period of time but also for Japan branches in Hong Kong and vice versa.
Lower withholding tax rates under the double tax treaty
The double tax treaty between Japan and Hong Kong encourages mutual investments between the two jurisdictions by lowering the withholding tax rates or eliminating them completely. The withholding tax rate for dividends under the treaty is 10% or 5% if the company receiving the dividend payment holds directly or indirectly at least 10% of shares in the company making the payment. The withholding tax rate on interest is reduced to 0% in certain cases under the treaty or to 10%. A reduction also applies to the withholding tax on royalties (under the treaty its value is 5% in all cases).
For additional information with respect to this double tax treaty
or other issues concerning foreign investments in the city please contact our Hong Kong law firm