Foreign tax credits can be claimed by Hong Kong tax residents if they have paid foreign taxes on income earned from a jurisdiction that has a Comprehensive Double Taxation Agreement (CDTA) with Hong Kong SAR, and the same income is subject to tax in Hong Kong SAR. Taxpayers must make efforts to minimize foreign tax payments before claiming tax credits in Hong Kong SAR.
For Hong Kong tax residents who pay foreign taxes on specified foreign-sourced income deemed taxable under the refined Foreign-Sourced Income Exemption (FSIE) regime, foreign tax credits are available regardless of whether the foreign taxes are paid in a jurisdiction with a CDTA with Hong Kong SAR. Again, taxpayers are required to take reasonable steps to minimize foreign tax payments before claiming tax credits in Hong Kong SAR.
Hong Kong has signed CDTAs with several countries to prevent double taxation and promote fair tax treatment. These agreements provide tax relief (in the form of tax credits) for foreign income that is also subject to Hong Kong’s profits tax.
The CDTAs are currently in force in many countries, such as Malaysia, Indonesia, South Korea, and Japan. With these agreements, businesses can manage their tax liabilities more efficiently and avoid being taxed twice on the same income in both Hong Kong and other countries with CDTAs.