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Hong Kong: Exchange of information



Ayesha Lau

Darren Bowdern

In July 2013, the Inland Revenue (Amendment) (No. 2) Ordinance 2013 was enacted. The Ordinance allows Hong Kong to enter into tax information exchange agreements (TIEAs), stand-alone agreements for exchange of tax information. The Ordinance also enhances the existing exchange of information (EoI) arrangements under a comprehensive double taxation agreement (DTA) to allow information exchanged to be used for other non-tax related purposes provided such use is permitted under the laws of both jurisdictions and such use is authorised by the competent authority of the supplying party. Before the enactment of this legislation, Hong Kong could only agree to exchange tax information as part of a broader DTA. The legislation was introduced following a recommendation of the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum). A Phase 1 review of Hong Kong was conducted by the Global Forum in 2011, and it strongly recommended the introduction of legislation to allow Hong Kong to enter into stand-alone TIEAs.

The Commissioner of Inland Revenue's powers have also been expanded to include tax information in a person's control. The DTAs concluded by Hong Kong only provide for information to be exchanged where that information is in a person's possession. Going forward, however, the Commissioner will be able to obtain information, which is in the control of a person, notwithstanding that the information may be in another jurisdiction. It remains to be seen how control in this context is to be interpreted.

In addition, the limitation on disclosure of information relating to a period before the relevant agreement has taken effect has been relaxed. In future, the Commissioner will be allowed to disclose tax information generated before the effective date of the relevant DTA or TIEA where he is satisfied that the information relates to the carrying out of the provisions of the relevant arrangements.

Notwithstanding these amendments, Hong Kong will only meet the minimum requirements of the 2012 version of the EoI article of the OECD's Model Tax Convention. For instance, it will neither entertain requests for tax examinations abroad nor will it provide assistance in the collection of taxes.

Islamic finance

The Stamp Duty Legislation (Alternative Bond Schemes) (Amendment) Ordinance 2013 was also enacted in July 2013 to amend the Inland Revenue Ordinance (IRO) and Stamp Duty Ordinance (SDO) to place common types of Islamic bonds on a level playing field with conventional bonds and remove a perceived impediment to the development of a sukuk market in Hong Kong. The prohibition on payment of interest and the transfer of assets involved results in additional tax exposures for Islamic finance products when compared with an economically equivalent debt arrangement. The Ordinance removes these additional tax imposts.

The legislation does not confer special tax concessions on the Islamic finance sector, but ensures that financial instruments of similar economic substance are afforded similar tax treatment. In addition, the legislation does not make specific references to Shariah terminologies, but rather adopts a religion-neutral approach using the term alternative bond scheme (ABS), rather than sukuk, to denote the arrangement to which the proposed tax treatment will apply.

Four types of investment arrangements are covered by the legislation and these correspond to the different underlying structures by which investment returns are generated in the five most common types of sukuk in the global market. The legislation also empowers the Financial Secretary to expand the coverage of eligible ABS, by way of subsidiary legislation in future.

Double taxation agreements

Hong Kong continues to expand its comprehensive double taxation agreement (DTA) network. Most recently, Hong Kong concluded its 29th CDTA with Qatar and this will enter into force when both jurisdictions have completed their formal ratification procedures.

The Inland Revenue Department also announced that the DTAs between Malaysia and Kuwait came into effect on December 28 2012 and July 24 2012 respectively. Under the Malaysian DTA, the withholding tax on dividends, interest and royalties is as shown in Table 1.

Table 1

Malaysia non-treaty withholding rate

Treaty withholding rate



5%1 / 10%



0%2 10%




Technical fees



1. Withholding tax on dividends is reduced to 5% where the recipient is a company, which holds directly or indirectly at least 10% of the capital of the paying company. However, Malaysia does not levy withholding taxes on dividends.

2. Withholding tax on interest is reduced to nil where the recipient is the government of the Hong Kong Special Administrative Region (HKSAR), the Hong Kong Monetary Authority or such other institutions established by the government of the HKSAR for the discharge of functions of a public purpose normally carried out by a government as may be agreed upon from time to time between the competent authorities of the two contracting parties.

The government remains committed to establishing a network of DTAs with Hong Kong's major trading and investment partners to enhance Hong Kong's position as an international business and financial centre. However, a number of major trading partners are yet to be convinced and are adopting a wait-and-see attitude. To address some of the concerns raised the government has passed legislation to enable Hong Kong to enter into tax information exchange agreements with other jurisdictions where necessary and to enhance the existing exchange of information arrangements under DTAs. It is hoped that this measure will address concerns raised by some jurisdictions about commencing DTA negotiations with Hong Kong.

In addition, further legislative measures were introduced by the government in April 2013. Namely, the Stamp Duty (Amendment) Bill 2013 which proposes to double the ad valorem stamp duty payable on acquisitions of residential and non-residential properties acquired on or after February 23 2013, except where the purchaser is a Hong Kong permanent resident who does not beneficially own any other residential property in Hong Kong on the date of acquisition. The Inland Revenue (Amendment) Ordinance 2013 gives effect to the tax concessions outlined in the 2013-14 Budget handed down on February 27 2013.

Ayesha Lau ( & Darren Bowdern (


Tel: +852 2826 8028 & +852 2826 7166


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