Hong Kong and Estonia, on September 25, signed a tax treaty to provide tax certainty in relation to cross-border transactions.
The tax treaty caps Estonia’s withholding tax rate for Hong Kong residents on royalties at five percent, instead of the current ten percent rate.
Under the tax treaty, any tax paid in Estonia by Hong Kong residents will be allowed as a credit against the tax payable in Hong Kong on the same income, subject to provisions of Hong Kong tax laws.
For Estonian residents, their income taxed in Hong Kong will be exempt from the Estonian tax, or the tax they pay in Hong Kong will be deducted from the Estonian tax in respect of the same income.
The tax treaty will enter into effect after both countries complete their respective ratification procedures.