The Double Taxation Agreement (DTA) between Hong Kong and Mexico was signed in June 2012; it entered into force in March 2013 and became effective from 1 April 2014. With this agreement, Hong Kong marked a new step towards international cooperation, as it was the first treaty signed with a country from Latin America. Before the ratification of the DTA, Mexican companies were subjected to double taxation. As of April 2014, this rule no longer applies, and if you are a Mexican investor interested in opening a company in Hong Kong, you should know that the DTA offers very good prospects on corporate income taxation.
Main provisions of the Hong Kong – Mexico DTA
The taxes applicable to foreign companies in Hong Kong are: the profits tax, the salaries tax and the property tax. Foreign residents in Hong Kong receiving interest payments from Mexico will be taxed according to the Mexican law. The withholding tax on interest applicable before the DTA was 30%, but according to the new provision, the tax has been lowered to 10%. If the owner of the interest is represented by a bank, the withholding tax will be applied at a rate of 4.9%. As such, company formation in Hong Kong can have benefits for the investors, according to the company’s operations.
Airlines companies from Hong Kong which have commercial routes to Mexico will be subjected to corporate tax in Hong Kong. The same rule applies in case of Hong Kong companies which earn profits from shipping in Mexico.
Taxes – important aspect for Mexican investors in Hong Kong
When investing in Hong Kong, as an entrepreneur, you may benefit for certain tax reductions, which now follow the Organisation for Economic Cooperation and Development laws.
• Taxes, before the treaty
The taxes between Mexico and Hong Kong were applicable as such:
– no taxes on dividends;
– taxes on interest were applicable for foreign investors at several stages (4.9%, 21% or 30%), according to the laws between the two states; our company formation specialists can provide further details on this matter;
– withholding taxes on royalties were applicable at the rates of 25%, 28% and 40% of the gross value.
• Taxes, under the DTA offer better conditions for investors, as they have been significantly reduced:
-no taxes on dividends;
– taxes on income, as stated above, are taxed at a rate of 4,9% and 10%, but the agreement states that governmental institutions of Hong Kong are subjected to a withholding tax on interest of 0%;
– withholding tax on royalties was reduced at 10%.
If you are interested in company registration in Hong Kong and you want to know further information on the Hong Kong – Mexico double taxation treaty, please contact our specialists in company formation.