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Us cancels Double Taxation exemption for Shipping in Hong Kong

The United States has announced the end of its double taxation relief agreement with Hong Kong on international shipping income, following the abolition of independent customs territory status and the ban on the "Made in Hong Kong" label.



Under the original bilateral agreement, Hong Kong companies were only required to pay tax in Hong Kong (which is exempted under the Inland Revenue Ordinance) and in the United States to avoid double taxation.In the event of termination of the agreement, the Hong Kong company will be subject to a 4% tax in the United States on one half of the gross income from each voyage into the United States and one half of the gross income from each voyage out of the United States.Since the agreement is bilateral, US companies established in Hong Kong after the termination of the agreement will also be subject to double US and Hong Kong tax rates.


The Government of the Hong Kong Special Administrative Region (HKSAR) said recently that the cancellation of the AGREEMENT in the US would increase the operating costs of shipping companies. In particular, us companies would be subject to double taxation, which was described as "hurting others", while Hong Kong companies would benefit from the duty-free arrangement in Hong Kong.


A Spokesman for the Hong Kong Government said that upon termination of the relevant agreement between Hong Kong and the United States, us companies would be required to pay tax to both the US and Hong Kong governments, while Hong Kong companies would only be required to pay tax to the US government due to the exemption of shipping income from Hong Kong under Section 23B of the Inland Revenue Ordinance.The spokesman said the cancellation of the agreement has hindered the development of the shipping industry in both places and harmed everyone.


Hong Kong shipping transportation officials pointed out that at present it is difficult to know after the termination of the agreement, whether to ship company to port operation decision how much impact, but there are many influence factors in this problem, including freight routes, transit network perfection, pick up the mainland export goods, etc., and Hong Kong itself low tax rates, even if the ship company needs to pay the double tax rates, not necessarily involves very large amount.


Hong Kong shipping officials said they could not rule out some companies leaving for Singapore, which also has duty-free agreements with the United States, such as some ocean-going shipping companies that focus on U.S. business.He believes that the companies that will be affected this time will be the charterers, but will not affect Hong Kong's shipping trade, because as long as there is business, American companies will continue to invest in Hong Kong.


So far, Hong Kong has signed agreements with 49 (originally 50) major trading partners, including the United Kingdom, Germany, France, Japan, South Korea, Canada, Russia, the Chinese mainland and Macau, covering regions that make up more than 80 percent of international trade.These agreements enable shipping companies, who are employed to file and pay taxes in Hong Kong, to avoid being taxed in another region.With Hong Kong's low tax rate and simple tax system, it attracts a large number of shipping companies to operate in Hong Kong and arrange their business to pay tax in Hong Kong whenever possible.


According to the Hong Kong Maritime Industry Overview 2019 released by the Hong Kong Maritime Port Authority last year, more than 2,600 merchant ships are owned or managed by hong Kong-registered shipowners, accounting for about 10 per cent of the world's merchant fleet and ranking fourth in the world, behind famous tax havens such as Panama and the Marshall Islands.


According to the Hong Kong Maritime Port Authority, as of June this year, there were 1,957 registered freighters in Hong Kong, with a total throughput of 8.647 million teUs of containers.In addition, According to the UK's Baltic Exchange International Shipping Centres Development Index (ISCD), Hong Kong overtook London as the world's second largest international shipping centre after Singapore for the first time that year.


Hong Kong has reached arrangements with more than 40 countries and regions to exempt shipping revenue from double taxation


It is well known that, given the international nature of shipping business, shipping companies are more vulnerable to double taxation than other types of businesses.In response to the appeal of the Hong Kong trade, the Hong Kong Special Administrative Region has implemented the revised legislation since 1 April 1998, which allows Hong Kong shipping companies to enjoy tax relief on their shipping income in areas with reciprocal tax relief legislation.At the same time, Hong Kong is endeavouring to negotiate double taxation relief arrangements for shipping income with places that do not have reciprocal tax relief legislation, and with places that do have reciprocal tax relief legislation but still prefer bilateral agreements.The above tax relief arrangements with global trading partners will greatly reduce the maritime tax burden on Hong Kong and its trading partners, enhance their international competitiveness, attract more overseas investors to Invest in Hong Kong and increase the interest of Hong Kong shipping companies in investing overseas.We will further consolidate and strengthen Hong Kong's position as an international shipping centre.


Double taxation relief arrangements include the following:


Tax exemption treatment arrangement: Under section 23B of the Inland Revenue Ordinance, shipping companies in Hong Kong enjoy tax relief in areas with similar tax exemption treatment legislation.


Avoidance of double taxation agreement covering shipping income: A bilateral agreement may mutually exempt a shipping company of one contracting party from taxes payable in the other Contracting Party on profits derived from the operation of international shipping.This agreement frees shipowners from the burden of double taxation.


Comprehensive avoidance of double taxation Agreements: Bilateral agreements/arrangements provide relief from double taxation on all types of income, including shipping income.


At present, Hong Kong has signed up with tax authorities of 42 countries and territories for double taxation relief arrangements related to shipping income.


Countries and territories with double taxation avoidance agreements include Denmark, Germany, the Netherlands, Norway, Singapore, Sri Lanka, the United Kingdom and the United States;Chile, South Korea and New Zealand are exempt from tax.Complete avoidance of double taxation agreement with Austria, Belgium, brunei, Canada, the Czech republic, France, guernsey, Hungary, Indonesia, Ireland, Italy, Japan, jersey, South Korea, Kuwait, Latvia, Liechtenstein, Luxemburg, mainland China, Malaysia, Malta, Mexico, Netherlands, New Zealand, Portugal, Qatar, Romania, Russia, South Africa, Spain, Switzerland, Thailand, united Arab emirates, United Kingdom, Vietnam.


In addition, the HKSAR Government is also discussing with the tax authorities of Bahrain, Bangladesh, Cyprus, Finland, India, Israel, Macao SAR, Macedonia, Mauritius, Pakistan and Saudi Arabia the arrangement for mutual exemption of shipping tax.