Hong Kong and Bahrain sign agreements to avoid double taxation and protect investments

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The agreements aim to promote and strengthen the economic and trade connections between the two places.

Hong Kong and have Bahrain signed a comprehensive avoidance of double taxation agreement (CDTA) and an Investment Promotion and Protection Agreement (IPPA) on 3 March 2024, aiming to further promote and strengthen the economic and trade connections between the two places.

The CDTA shall apply to individuals who, as well as companies which, are residents of one or both of the contracting parties, intending for the elimination of double taxation with respect to taxes on income without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance. It sets out the allocation of taxing rights between the two jurisdictions and will help investors better assess their potential tax liabilities from cross-border economic activities.

Under the Hong Kong-Bahrain CDTA, Hong Kong companies can enjoy double taxation relief in that any tax paid in Bahrain, whether directly or by deduction, in accordance with the CDTA will be allowed as a credit against the tax payable in Hong Kong in respect of the same income, subject to the provisions of the tax laws of Hong Kong. In the case of the Hong Kong SAR, the existing taxes to which the agreement shall apply are profits tax, salaries tax and property tax.

This CDTA will come into force after the completion of ratification procedures by both jurisdictions. In the case of Hong Kong, it will be implemented by way of an order to be made by the Chief Executive in Council under the Inland Revenue Ordinance (Cap. 112). The order is subject to negative vetting by the Legislative Council.

This CDTA is the 49^th agreement that Hong Kong has concluded. Christopher Hui, Secretary for Financial Services and the Treasury, said Hong Kong will continue to negotiate with trading and investment partners with a view to expanding its CDTA network to enhance the attractiveness of Hong Kong as a business and investment hub, and consolidate the city's status as an international economic and trade centre.

Apart from the CDTA, the two jurisdictions also signed the IPPA to strengthen mutual investment protection, with a view to enhancing confidence of investors and expanding investment flows.

Under the agreement, the two governments undertake to provide investors of the other side with fair, equitable and non-discriminatory treatment of their investments, compensation in the event of expropriation of investments, and the right to free transfers abroad of investments and returns. The agreement also provides for settlement of investment disputes under internationally accepted rules. The agreement will enter into force after the fulfilment of the relevant internal procedures on both sides.

The Hong Kong-Bahrain IPPA is the second such agreement that this term of Government has signed following the IPPA signed with Türkiye last October. It is also the 24^th investment agreement that Hong Kong has signed with a foreign economy.

Following the signing of the Hong Kong-Bahrain IPPA, the geographical scope of the Dedicated Fund on Branding, Upgrading and Domestic Sales ("the BUD Fund") is also extended to cover Bahrain (as the 39^th eligible economy) with immediate effect to further support Hong Kong enterprises in developing their businesses there.

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Photo / HKSAR Government Press Releases