On 26 June 2019 Hong Kong signed a comprehensive income tax treaty with Cambodia. Tax treaties between countries seek to prevent double taxation on cross-border investments in order to facilitate global economic growth and expansion.
The agreement sets out the allocation of taxing rights between the two jurisdictions, which will help investors better assess their potential tax liabilities from cross-border economic activities.
Under it, any tax paid in Cambodia by Hong Kong compa¬nies will be allowed as a credit against the tax payable in Hong Kong on the same income, subject to the provisions of Hong Kong tax laws.
For Cambodian companies, the tax they pay in Hong Kong will be allowed as a deduction from the tax payable on the same income in Cambodia.
The agreement also provides several tax relief arrangements and has incorporated an article on the exchange of information which enables Hong Kong to fulfill its international obligations on enhancing tax transparency and combating tax evasion.
The agreement includes the following tax relief arrangements:
- Cambodia’s withholding tax rates for Hong Kong residents on dividends, interest, royalties, and fees for technical services will be reduced from the current level of 14 percent to 10 percent;
- Hong Kong airlines operating flights to and from Cambodia will be taxed at Hong Kong’s corporation tax rate, and will not be subjected to tax on income in Cambodia;
- Hong Kong residents deriving profits from international shipping transport in Cambodia will enjoy a 50 percent reduction in tax on income in Cambodia in respect to the profits subject to tax there.
As for capital gains, the following derived by a resident of one contracting party may be taxed by the other party:
- Gains from the alienation of immovable property situated in the other party;
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other party;
- Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other party.
Gains from the alienation of other property by a resident of a contracting party may only be taxed by that party.
This is the 41 tax treaty signed by Hong Kong. Cambodia was HK’s 38th largest trading partner in 2018 and the government of Hong Kong is confident that this agreement between the countries will encourage bilateral investments and cooperation. The comprehensive income tax treaty will come into force after the completion of ratification procedures by both jurisdictions
