All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

DTAs and Islamic bonds in Hong Kong


A focus on Hong Kong's network of double taxation agreements (DTAs) and why it wants an Islamic bond market.


Hong Kong continues to enhance its network of comprehensive double taxation agreements (DTA) with the signing of an agreement with Malaysia in April 2012. Hong Kong has now concluded 24 agreements and is in the process of negotiating agreements with a further 11 countries.

Furthermore, in March 2012, the DTA with Indonesia entered into force and will have effect in Hong Kong for years of assessment commencing on or after December 31 2013. The DTA with Indonesia potentially makes Hong Kong one of the more attractive locations for investing into Indonesia. Hong Kong''s DTA with Indonesia provides for a withholding tax rate of 5% on dividends and royalties and either 5% or 10% for interest. These rates compare favourably with Singapore and the Netherlands.

The DTA between Hong Kong and Indonesia also provides a complete exemption from withholding tax on capital gains derived from private share transfers, subject to certain limitations.

Investors wishing to rely on the agreement will need to ensure that they have sufficient substance in Hong Kong to benefit from the agreement. Furthermore, an area of uncertainty remains on the application of the reduced withholding tax rate for dividend income. For the reduced withholding tax rate of 5% or 10% to apply, Indonesia requires that the income must be subject to tax in the other jurisdiction. As dividends are not subject to tax in Hong Kong, it remains unclear whether the reduced withholding tax could apply to dividends. It is understood that the Hong Kong Inland Revenue Department has sought clarification from their counterparts in Indonesia on this aspect, and we await the outcome of these discussions.

Provided these uncertainties are resolved, Hong Kong should be well placed to become the preferred investment location for investment into Indonesia.

Islamic bonds

In March 2012, the Hong Kong government launched a two month consultation on proposed amendments to the Inland Revenue Ordinance and Stamp Duty Ordinance to promote the development of an Islamic bond market in Hong Kong. This policy initiative was first articulated by the Chief executive, Donald Tsang, in his policy address in 2007 and most recently by the Financial Secretary, John Tsang Chun-wah in the Hong Kong Budget for 2012-13.

The consultation demonstrates Hong Kong''s commitment to ensuring that it has the legal and tax framework required to support the development of Islamic financing in the region. Against a background of an ever increasing demand for Islamic financing products from both investors and borrowers, it is essential that Hong Kong provides an efficient platform to promote the sector in the region. To do this, Islamic financing products have to be treated the same as more conventional forms of financing. Introducing such rules will reinforce Hong Kong''s position as an international finance centre.

Ayesha Lau ( & Darren Bowdern (


Tel: +852 2826 7166 & +852 2826 7165?


More from across our site

The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
Tax leaders say communication with peers is important for risk management, especially on how to approach regional authorities.
Advances in compliance tools in international markets and the digitalisation of global tax administrations are increasing in-house demand for technologists.
The US fast-food company has agreed to pay €1.25 billion to settle the French investigation into its transfer pricing arrangements over allegations of tax evasion.
HM Revenue and Customs said the UK pillar two legislation will be delayed until at least December 2023, while ITR reported on a secret Netflix settlement and an IMF study on VAT cuts.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree