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Hong Kong's Free Trade Agreements 

Hong Kong has been actively seeking to expand its Free Trade Agreement (FTA) network in order to secure favorable conditions for Hong Kong's goods and services to enter the mainland and international markets.

So far, Hong Kong has signed eight FTAs, respectively with

  • The Mainland of China (June 2003);
  • New Zealand (March 2010);
  • The Member States of the European Free Trade Association (EFTA) (June 2011);
  • Chile (September 2012);
  • Macao (October 2017);
  • The Association of Southeast Asian Nations (ASEAN) (November 2017)
  • Georgia (June 2018); and
  • Australia (March 2019).

It has also concluded FTA negotiation with Maldives.

The mainland and Hong Kong Closer Economic and Partnership Arrangement (CEPA)

Although Hong Kong is part of China, there are differences between the two concerning tariffs and duties, as well as through Hong Kong’s status as a Free Port. To address these, Mainland China and Hong Kong structured the “Closer Economic & Partnership Arrangement” (CEPA) in 2003.

CEPA is an open and developing FTA. Adopting a building block approach, the mainland and Hong Kong have continuously expanded the scope and content of CEPA over the years.

CEPA covers four broad areas:

(1) Trade in goods

Trade in goods has been fully liberalized. Products of Hong Kong that fulfill the CEPA rules of origin (ROO) can enjoy zero-tariff treatment upon importation into the mainland.

(2) Trade in services

The mainland and Hong Kong have basically achieved liberalization of trade in services. Enterprises and individuals in service industries in Hong Kong can make use of preferential arrangements to carry out and expand business in most sectors in the mainland.

(3) Investment

Hong Kong investments and investors enjoy investment protection and facilitation in the mainland.

(4) Economic and technical cooperation

The two sides have agreed to enhance economic and technical cooperation in various areas with a view to catering for and supporting the development between the two places, as well as promoting the cooperation in the economic and trade areas of the Belt and Road Initiative and Sub-regional Cooperation.

Hong Kong - New Zealand Closer Economic Partnership Agreement

New Zealand was Hong Kong's 37th largest trading partner. Merchandise trade between New Zealand and Hong Kong amounted to HK$11.4 billion in 2019. In terms of services trade, New Zealand was Hong Kong’s 27th largest trading partner, with bilateral services trade amounted to HK$3.8 billion in 2018.

Hong Kong and New Zealand signed the Hong Kong, China - New Zealand Closer Economic Partnership Agreement (the Agreement) on March 29, 2010. The Agreement is Hong Kong's first FTA with a foreign economy, and the second FTA following the Closer Economic Partnership Arrangement with the Mainland of China.

The Agreement entered into force on January 1, 2011.

Free Trade Agreement between Hong Kong and the member states of the European Free Trade Association (EFTA)

The European Free Trade Association (EFTA), taken as a single entity, was Hong Kong's 17th largest trading partner. Merchandise trade between the EFTA and Hong Kong amounted to HK$69.5 billion in 2020. In terms of services trade, the EFTA was Hong Kong’s 17th largest trading partner, with bilateral services trade amounted to HK$13.8 billion in 2018.

Hong Kong and the Member States of the EFTA States, namely Iceland, Liechtenstein, Norway and Switzerland, signed a comprehensive FTA (the Agreement) on June 21,2011 in Liechtenstein. This Agreement is Hong Kong's first FTA with the European economies. It is an important milestone in Hong Kong’s trade relations with the four EFTA states.

The dates of entry into force of the Agreement are as follows:

  • October 1, 2012 - between Hong Kong, Iceland, Liechtenstein and Switzerland
  • November 1, 2012 - between Hong Kong and Norway

Free Trade Agreement between Hong Kong and Chile

Chile was Hong Kong's 3rd largest trading partner in Latin America. Bilateral merchandise trade between Chile and Hong Kong amounted to HK$17.1 billion in 2019. In terms of services trade, Chile was Hong Kong’s 3rd largest trading partner in Latin America, with bilateral services trade amounted to HK$1.3 billion in 2012.

[tips title="Did You Know"]After three rounds of negotiation, the FTA between Hong Kong and Chile (the Agreement) was signed on September 7, 2012. The Agreement is the first FTA of Hong Kong with a South American economy.[/tips]

Alongside but separate from the FTA, Hong Kong and Chile have signed a Memorandum of Understanding (MoU) on Labor Cooperation to address labor matters of mutual interest.

The Agreement entered into force on October 9, 2014.

Hong Kong and Macao Closer Economic Partnership Arrangement (HK-Macao CEPA)

On trade in goods, Macao was Hong Kong's 19th largest trading partner in 2019. Bilateral trade in goods between the two economies amounted to about HK$61.9 billion in 2019. On trade in services, Macao ranked 15th among Hong Kong's trading partners in 2018. Bilateral trade in services amounted to about HK$15.6 billion in 2018. On investment, Macao was the 15th major source of inward direct investment (IDI) into Hong Kong (with a stock of HK$39.4 billion) and 11th major destination of outward direct investment (ODI) from Hong Kong (with a stock of HK$81.1 billion) at the end of 2018.

Hong Kong and Macao commenced formal discussions for HK-Macao CEPA in November 2015. After three rounds of talks and subsequent discussions, the main text and the schedule of commitments were finally agreed on June 29, 2017 and HK-Macao CEPA was signed on October 27, 2017.

HK-Macao CEPA entered into force on October 27, 2017. The liberalization measures of trade in goods and services provided for therein were implemented on January 1, 2018.

FTA between Hong Kong and Georgia

Georgia is one of Hong Kong's important trading partners in the Caucasus. The total merchandise trade between Hong Kong and Georgia was HK$238 million in 2020. Georgia ranked 115th among Hong Kong's worldwide trading partners for trade in goods in 2020. Reciprocally, Hong Kong ranked 26th among Georgia's trading partners for trade in goods in 2019.

Hong Kong and Georgia commenced FTA negotiations in September 2016. The negotiations were concluded in April 2017. The FTA was signed on June 28, 2018.

The FTA entered into force on February 13, 2019.

FTA between Hong Kong and the Association of Southeast Asian Nations

The Association of Southeast Asian Nations (ASEAN) was Hong Kong's second-largest trading partner in merchandise trade in 2019 and the fourth largest in services trade in 2018. Total merchandise trade between Hong Kong and ASEAN amounted to HK$1,018 billion in 2019 and total services trade between the two sides was HK$137 billion in 2018. As of the end of 2018, ASEAN ranked fourth among Hong Kong's destinations of outward direct investment, with a stock of HK$480 billion. It ranked sixth among Hong Kong's sources of inward direct investment, with a stock of HK$533 billion.

Hong Kong and ASEAN commenced negotiations of the FTA and an Investment Agreement (the Agreements) in July 2014. After ten rounds of negotiations, Hong Kong and ASEAN announced the conclusion of the negotiations in September 2017; and signed the Agreements on November 12,2017. The Agreements will extend Hong Kong's FTA and Investment Agreement network to cover all major economies in Southeast Asia.

FTA between Hong Kong and Australia

Australia is a valuable trading partner of Hong Kong. It was Hong Kong’s 7th largest services trading partner in 2018, with total services trade between the two sides amounting to HK$47 billion and Hong Kong’s 20th largest merchandise trading partner in 2019, with total merchandise trade amounting to HK$50 billion.

As of the end of 2018, Australia ranked 8th among Hong Kong's destinations of outward direct investment, with a stock of HK$119 billion and ranked 16th among Hong Kong's sources of inward direct investment, with a stock of HK$39 billion.

Hong Kong and Australia commenced negotiations of an FTA and an Investment Agreement (the Agreements) in May 2017. The negotiations were concluded in November 2018. The two Agreements were signed on March 26, 2019.

The Agreements entered into force on January 17, 2020.

Hong Kong’s Double Taxation Agreement Network

Double taxation arises when two or more tax jurisdictions overlap, resulting in the same item of income or profit being taxed in each. Hong Kong adopts the territoriality basis of taxation, whereby only income/profit sourced in Hong Kong is subject to tax, and that derived from a source outside Hong Kong by a local resident is in most cases not taxed in Hong Kong. Therefore, Hong Kong residents generally do not suffer from double taxation. Many countries which tax on a worldwide basis also provide their residents who operate a business in Hong Kong with unilateral tax credit relief. Hong Kong allows a deduction for foreign tax paid on a turnover basis in respect of an income which is also subject to tax in Hong Kong. Businesses operating in Hong Kong therefore do not generally have problems with double taxation of income.

[video file='https://cdn.jwplayer.com/videos/ylNxk39x-sZcHHUE7.mp4' image='https://resource.dezshira.com/resize/900x506/Misc/banners/web_1.jpg' title='Maximize Profits in Your Dividend Repatriation by Leveraging the PRC-HK DTA']

Notwithstanding this, the Hong Kong SAR government recognizes that there are merits in concluding comprehensive double taxation agreements (DTAs) with their trading partners. A DTA provides certainty to investors on the taxing rights of the contracting parties; helps investors to better assess their potential tax liabilities on economic activities; and provides an added incentive for overseas companies to do business in Hong Kong, and likewise for Hong Kong companies doing business overseas. By this time of writing, Hong Kong has signed comprehensive DTAs with 40 countries or regions. In addition, Hong Kong is in the process of negotiating comprehensive DTAs with 13 countries or regions such as Germany, Norway, and Turkey.

Due to the international nature of aircraft operations, airline operators are more susceptible to double taxation than other taxpayers. As negotiation of a DTA may take a long time, it has been Hong Kong’s policy to include double taxation relief arrangements for airline income in the bilateral Air Services Agreements negotiated between Hong Kong and its aviation partners. Shipping income is another area of concern. Hong Kong is currently negotiating double taxation relief for shipping income with jurisdictions that either do not provide reciprocal tax exemption themselves or, even when reciprocal exemption provisions exist, prefer to employ bilateral agreements. There are also agreements that cover both airline and shipping income.

[tips title="Did You Know"]Hong Kong’s onshore-offshore tax regime often results in a reduced tax burden for those that operate through Hong Kong companies by pricing intra-group transactions. This has led to heightened transfer pricing scrutiny from the Hong Kong Inland Revenue Department in recent years.[/tips]

Consequently, the Advance Pricing Arrangement (APA) program* was introduced to Hong Kong in 2012, which was widely regarded as a welcome development for multinational companies, as it offers a non-adversarial approach in which taxpayers can engage with tax authorities in a transparent manner to achieve an optimal tax outcome. Importantly, Hong Kong can only start an APA program with another country after having signed a DTA with that country. 

*An APA is an agreement that determines an appropriate set of criteria (e.g. transfer pricing method, external data, appropriate adjustments, critical assumptions as to future events) to determine the pricing of related party transactions over a fixed period of time. This is either three or five years.
 

Below we listed some tax forms that are required by the Inland Revenue Department under specific situation for your easy reference:

Countries and Regions with Existing Comprehensive DTAs with Hong Kong

A-I

J-N

O-Z

Austria

Japan

Pakistan

Belarus

Jersey

Portugal

Belgium

Korea

Qatar

Brunei

Kuwait

Romania

Cambodia

Latvia

Russia

Canada

Liechtenstein

Saudi Arabia

Czech

Luxembourg

Serbia

Estonia

Macao SAR

South Africa

Finland

Mainland of China

Spain

France

Malaysia

Switzerland

Georgia

Malta

Thailand

Guernsey

Mexico

United Arab Emirates

Hungary

Netherlands

United Kingdom

India

New Zealand

Vietnam

Indonesia

   

Ireland

   

Italy

   

 

Countries and Regions with DTAs Under Negotiation with Hong Kong

Bahrain

Kyrgyz Republic

North Macedonia

Bangladesh

Lithuania

Norway

Cyprus

Maldives

Turkey

Germany

Mauritius

Ukraine

Israel

Nigeria

 

Tax rates for dividends, interest, royalties and technical fess under DTAs

The following table shows the maximum rates of tax those countries / regions with a Comprehensive DTAs with Hong Kong can charge a Hong Kong resident on payments of dividends, interest, royalties and technical fees.

Tax Rates for Dividends, Interest, Royalties, and Technical Fees Under DTAs

Country /

region

Effective from

Dividends

Interest (%)

Royalties (%)

Technical fees (%)

   

Qualifying companies (%)

Others (%)

     

Austria

Year of assessment

2012/2013

0

10

-

3

NA

Belarus

Year of assessment

2018/2019

5

5

5

3/5

NA

Belgium

Belgium

Year of assessment

2004/2005

0/5

15

10

5

NA

Brunei

Year of assessment

2011/2012

-

-

5/10

5

15

Cambodia

Year of assessment 2020/2021

10

10

10

10

10

Canada

Year of assessment

2014/2015

5

15

10

10

NA

Czech

Year of assessment

2013/2014

5

5

-

10

NA

Estonia

Year of assessment 2020/2021

0

10

0/10

NA

NA

Finland

Year of assessment 2019/2020

5

10

-

3

NA

France

Year of assessment

2012/2013

10

10

10

10

NA

Georgia

Pending

5

5

5

5

NA

Guernsey

Year of assessment

2014/2015

-

-

-

4

NA

Hungary

Year of assessment

2012/2013

5

10

5

5

NA

India

Year of assessment 2019/2020

5

5

10

10

10

Indonesia

Year of assessment 2013/2014

5

10

10

5

NA

Ireland

Year of assessment

2012/2013

-

-

10

3

NA

Italy

Year of assessment

2016/2017

10

10

12.5

15

NA

Japan

Year of assessment

2012/2013

5

10

10

5

NA

Jersey

Year of assessment

2014/2015

-

-

-

4

NA

Korea

Year of assessment

2017/2018

10

15

10

10

NA

Kuwait

Year of assessment

2014/2015

5

5

5

5

NA

Latvia

Year of assessment

2018/2019

0

10

0/10

0/3

NA

Liechtenstein

Year of assessment

2012/2013

-

-

-

3

NA

Luxembourg

Year of assessment

2008/2009

0

10

-

3

NA

Macao SAR

Year of assessment 2021/2022

5

5

5

3

NA

Mainland of China

Year of assessment

2007/2008

5

10

7

5/7

NA

Malaysia

Year of assessment

2013/2014

5

10

10

8

5

Malta

Year of assessment

2013/2014

-

-

-

3

NA

Mexico

Year of assessment

2014/2015

-

-

4.9/10

10

NA

Netherlands

Year of assessment

2012/2013

0

10

-

3

NA

New Zealand

Year of assessment

2012/2013

0/5

15

10

5

NA

Pakistan

Year of assessment

2018/2019

10

10

10

10

12.5

Portugal

Year of assessment

2013/2014

5

10

10

5

NA

Qatar

Year of assessment 2014/2015

-

-

-

5

NA

Romania

Income derived on or after 01.01.2017

3

5

3

3

NA

Russia

Year of assessment

2017/2018

0/5

10

-

3

NA

Saudi Arabia

Year of assessment

2019/2020

5

5

-

5/8

NA

Serbia

Year of assessment 2021/2022

5

10

10

5/10

NA

South Africa

Year of assessment

2016/2017

5

10

10

5

NA

Spain

Year of assessment

2013/2014

0

10

5

5

NA

Switzerland

Year of assessment

2013/2014

0

10

-

3

NA

Thailand

Year of assessment

2006/2007

10

10/15

5/10/15

NA

United Arab Emirates

Year of assessment

2016/2017

5

10

5

5

NA

United Kingdom

Year of assessment

2011/2012

0/15

0/15

Domestic rate

3

NA

Vietnam

Year of assessment

2010/2011

10

10

10

7/10

NA

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