Hong Kong – Macau CDTA (Comprehensive Avoidance of Double Taxation Arrangement)
For years, Hong Kong and Macau residents have earned income across the border and have to pay tax twice. Hong Kong and Macau are both Special Administrative Region of Mainland China. Recently, Hong Kong signed a comprehensive avoidance double tax arrangement with the Mainland. The main reason for the signing was that residents of both jurisdictions frequently travel across the borders for work and business. Hence, the income earned through employment and the company is subject to tax in home jurisdiction and workplace jurisdiction. The same applies when Macau and Hong Kong residents work and do business across the borders. Hence, Hong Kong and Macau signed a comprehensive avoidance double tax arrangement (CDTA) back in November 2019. Recently, the Hong Kong – Macau CDTA receives the order to be gazetted.
Hong Kong – Macau CDTA
The signing of this pact is the 43rd for Hong Kong and its trading partners. Macau is one of Hong Kong’s largest trading partners, and trade between the two jurisdictions has always flourished. Under the CDTA with Macau, Hong Kong residents paying tax in Macau is allowed as a credit against Hong Kong tax payable on the same income. However, it is subject to the tax laws provisions in Hong Kong. For Macau residents, they will no longer need to pay for tax in Macau, once they have paid tax in Hong Kong for the same income. The aim is to encourage significant tax savings and inform significant taxation liabilities for residents of both sides. The likelihood of residents to engage in cross-border trade and investment activities are very high. The CDTA brings about immense relief for both traders and workers.
The much-awaited CDTA between Hong Kong and Macau will provide tax relief for profits from cross-border shipping, air and land transport. This applies to profits earned by Hong Kong residents in Macau. Another type of tax relief is provided for eligible educators or researchers. They are employed in Hong Kong but engage in teaching or research activities at a recognised institution in Macau. Their earnings are exempted from tax in Macau for three years, provided they pay tax in Hong Kong.
With the CDTA in place, trading ties and economic activities between the two jurisdictions will likely progress for the better. It will open up additional incentives for the business sector of both sides to invest, nurture and exchange of talents. Furthermore, the CDTA will lead to the development of the Guangdong-Hong Kong – Macau Greater Bay Area. The Greater Bay Area consists of Hong Kong, Macau and nine other municipalities of the Guangdong province. Since Hong Kong is the most renowned among the rest, it remains as a critical international gateway for Mainland and vice versa. For now, both sides are still undergoing the ratification process. Once done, the CDTA will come into force.