Mauritius – Hong Kong Double Tax Avoidance Agreement is in Force
Following the ratification procedures by both treaty partners, the The Double Taxation Avoidance Agreement (“DTAA”) between Mauritius and Hong Kong has come into effect as from 23 June 2023.
The new DTAA between Mauritius and Hong Kong aims to strengthen economic ties by promoting investment and trade while providing clarity on tax obligations for residents and businesses in both jurisdictions. Key features of this agreement include:
- Reduction of Withholding Taxes: The DTAA generally reduces or eliminates withholding taxes on various types of income, such as dividends, interest, and royalties, when earned by residents of one country in the other. This reduction can encourage cross-border investment and allow businesses to retain a larger portion of their earnings.
- Capital Gains Taxation: The agreement clarifies the taxation of capital gains from the sale of shares. In some cases, the country of residence may have the exclusive right to tax such gains, providing more certainty for investors.
- Permanent Establishments: The DTAA defines the concept of permanent establishments, which can impact the taxation of businesses’ profits in foreign jurisdictions. Clear guidelines on what constitutes a permanent establishment help prevent disputes and ensure fair taxation.
- Exchange of Information: The agreement also includes provisions for the exchange of information between tax authorities of the two countries. This enhances transparency and helps prevent tax evasion and avoidance.
Summary of the new tax rates:
| Dividends | Interest | Royalties | Technical services | |
| Mauritius domestic WHT rate | 0% | 0%/15% | 0%/15% | 5% |
| Hong Kong domestic WHT rate | 0% | 0% | 2.475% to 4.95% | 0% |
| Mauritius – Hong Kong DTAA rate | 0%/5% | 0%/5% | 5% | 0% |
Implications for Businesses and Investors:
The new DTAA holds several potential benefits for businesses and investors in both Mauritius and Hong Kong:
- Enhanced Investment Climate: By reducing tax uncertainties and barriers, the agreement can attract foreign investment and promote cross-border business activities between the two countries.
- Tax Efficiency: Businesses can optimize their tax planning strategies, potentially minimizing their overall tax liability and maximizing profits.
- Legal Certainty: The clear guidelines provided by the DTAA can prevent disputes and conflicts related to tax matters, offering a stable and predictable environment for businesses to operate in.
- Diversified Economic Ties: The DTAA opens avenues for collaboration in various sectors, encouraging diversification of economic activities beyond the traditional areas of focus for both countries.
The ratification and enforcement of the Double Tax Avoidance Agreement between Mauritius and Hong Kong signal a new chapter in their economic relations. This agreement fosters an environment conducive to trade, investment, and economic growth by providing clear tax rules and incentives. As businesses and investors explore the opportunities presented by this agreement, it’s likely that the bilateral ties between these two regions will deepen, creating a win-win scenario for both parties involved.