Hong Kong has signed an agreement with Brunei for the avoidance of double taxation and the prevention of fiscal evasion with respect to income taxes.

Financial Secretary John Tsang signed the deal with Brunei Second Minister of Finance Abdul Rahman Ibrahim in the sultanate today.

This is the sixth comprehensive agreement for the avoidance of double taxation concluded by Hong Kong. It will eliminate double taxation instances encountered by Hong Kong and Bruneian investors, and bring about tax savings and certainty in tax liabilities in connection with cross-border economic activities.

It will also help foster closer economic and trade links between the two places, and provide added incentives for Brunei's enterprises to do business or invest in Hong Kong.

Profits of Hong Kong trading companies doing business through a permanent establishment, such as a sales outlet, in Brunei may be taxed in both places if the income is Hong Kong sourced. Under the agreement, double taxation is avoided in that any Brunei tax paid by the companies can be deducted from the tax payable in Hong Kong.

Hong Kong residents receiving interests from Brunei are subject to a withholding tax, which is currently at 15%. Under the agreement, this will be reduced to 10%. If the recipient is a bank or financial institution, the withholding tax rate will be further reduced to 5%. Brunei has also agreed to lower the withholding tax on royalties received by Hong Kong residents from Brunei from the current rate of 10% to 5%.

Both sides also agree to allow Hong Kong airlines operating flights to Brunei to be taxed at Hong Kong's corporation tax rate, which is lower than Brunei's. Profits from international shipping transport earned by Hong Kong residents arising in Brunei, which are currently subject to tax there, will enjoy tax exemption under the agreement.

Click here to read the agreement.

Hong Kong will sign agreements for the avoidance of double taxation with the Netherlands and Indonesia this week.