Financial Secretary John Tsang today signed an agreement on the avoidance of double taxation with Romania in Bucharest.
Mr Tsang said that the agreement sets out the allocation of taxing rights between the two jurisdictions clearly, which will help investors better assess their potential tax liabilities from cross-border economic activities.
"The agreement will bolster economic and trade connections between the two places, and offer additional incentives for companies in Romania to do business or invest in Hong Kong, and vice versa," Mr Tsang added.
Under the agreement, tax paid in Hong Kong by Romanian residents will be allowed as a deduction from Romanian tax on the income taxed in Hong Kong.
Double taxation will be avoided in that any Romanian tax paid by the Hong Kong companies will be allowed as a credit against the tax payable in Hong Kong in respect of the income, subject to the provisions of the tax laws of Hong Kong.
Romania's withholding tax rate on royalties, currently at 16%, will be capped at 3%. Romania's dividend withholding tax on Hong Kong residents will be reduced from 16% to a maximum of 5%.
Romania's interest withholding tax rate on Hong Kong residents, currently at 16%, will be reduced to zero as long as Hong Kong levies no withholding tax on interest. If Hong Kong levies withholding tax on interest, Romania's interest withholding tax rate on Hong Kong's residents will be capped at 3%.
Hong Kong airlines operating flights to Romania will be taxed at Hong Kong's corporation tax rate, and will not be taxed in Romania. Profits from international shipping transport earned by Hong Kong residents that arise in Romania will not be taxed in Romania under the agreement.
This is the 33rd comprehensive agreement for the avoidance of double taxation that Hong Kong has signed with its trading partners.
It will come into force after both sides complete ratification procedures.
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