Hong Kong Tax Alert - 6 October 2015 (2015 Issue No. 14)
New tax treaty benefit claim procedures in mainland China will require all Hong Kong applicants to produce a certificate of residence
Public Notice 601 recently issued by the State Administration of Taxation announced that from 1 November 2015 self-assessment procedures will replace the current pre-approval procedures when a non-resident claims tax treaty benefits in mainland China, including benefits claimed under the comprehensive double tax agreement signed between mainland China and Hong Kong (the CDTA).
It should be noted that the responsibility of taxpayers under the new self-assessment procedures will be onerous, the relevant tax authorities in mainland China likely levying interest and penalties in respect of tax undercharged where their review of a self-assessment claim warrants the raising of an additional assessment.
Furthermore, under Public Notice 60, all Hong Kong applicants, including companies incorporated in Hong Kong are required to produce a Certificate of Residence (CoR) issued by the Inland Revenue Department (IRD) of Hong Kong.
Presumably, further to the new self-assessment procedures, the IRD will now dispense with the current requirement that an applicant produce a referral letter issued by the relevant tax authorities in mainland China requesting a CoR, before the IRD processes such an application in Hong Kong. An early confirmation from the IRD in this regard would be most welcome.
Obtaining a CoR in Hong Kong and the implications of the new self-assessment procedures for claiming tax benefits in mainland China under the terms of the CDTA, can both be complicated matters. In addition to considering the tax residence of an applicant, the tax authorities in Hong Kong and mainland China will also examine whether the applicant is the beneficial owner of the income concerned and whether the applicant is abusing the terms of the CDTA. Where necessary, clients should seek professional tax advice.
1. Public Notice No. 60 refers to the State Administration of Taxation Announcement on Administrative Measures for Granting Tax Treaty Benefits to Non-residents, Gonggao (2015) No. 60 issued on 27 August 2015 (國家稅務總局公告2015年第60號《非居民納稅人享受稅收協定待遇管理辦法》)