For the people of Macau, double taxation is avoided by exempting Macau income taxed in Hong Kong or by charging The Hong Kong tax on the Macau tax due for the same income. Representatives of the governments of Hong Kong and Macau signed a new income tax agreement on 25 November 2019 to combat double taxation. The treaty or “arrangement” will enter into force as soon as formal ratification procedures have been completed by both parties. Hong Kong applies the credit method to eliminate double taxation, while Macau generally applies the exemption method. Macau will, however, provide a credit for taxable income under Article 10 (dividends), 11 (interest) and 12 (royalties). On November 25, 2019, Hong Kong signed a comprehensive double taxation agreement with Macau (click here). The agreement will enter into force after formal ratification procedures by both parties. Prior to the agreement, income earned by the people of Macau in Hong Kong is subject to income tax in Hong Kong and Macau. The agreement would avoid double taxation by exempting income taxed in Hong Kong from Macau tax or by taxing Hong Kong`s tax on Macau, which must be paid for the same income. The agreement also provides for a Hong Kong tax credit, which must be paid for each Macau tax paid. When a person other than a person is considered resident in both parties, the competent authorities determine, for the purposes of the agreement, the location of the person by mutual agreement, taking into account his or her actual place of management, the place of management or other reasons, and other relevant factors. In the absence of an agreement, that person is not entitled to the exemption or exemption from tax provided by the agreement, unless the competent authorities of both parties have any right.
This agreement is the 43rd complete circumvention of the double taxation agreement or the agreement signed by Hong Kong with its trading partners.