e-Taxation

However, unlike other tax treaties, the Agreement does not deal with issues such as withholding tax rates on interest, royalties and dividends. Fortunately, China does not at present impose withholding tax on outbound dividends, and the withholding tax rates on interest and royalties have recently been reduced to 10%, the same as most treaty rates. The Agreement maintains the status of Hong Kong as the most favored intermediary jurisdiction for investments into China.

The Hong Kong Government has steadfastly declined to offer specific tax incentives such as reduced tax rates, tax holidays or tax credits to attract foreign investment. As hi-tech industries are becoming more and more important, and Hong Kong still has a long way to go in building up its technology sector, tax incentives may become an attribute needed to attract foreign investment in these industries, especially as neighbouring competitors such as Singapore, Taiwan and Shenzhen are offering tax incentives to these industries (Law, 2001).