China Clarifies Recognition of Resident Enterprises Under Hong Kong DTA

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Oct. 15 – To enjoy the tax benefits of the double taxation avoidance agreement (DTA) signed between Hong Kong and Mainland China (“the Mainland”), eligible applicants must be tax residents of Hong Kong. Recently, China’s State Administration of Taxation (SAT) released the “Announcement Concerning Resident Status Recognition Procedures in Implementing the DTA between Hong Kong and China Mainland (SAT Announcement No. 53, hereinafter referred to ‘Announcement 53’)” to clarify the criteria for being recognized as a Hong Kong resident for tax purposes, which will enter into force on November 1, 2013.

To declare preferential DTA treatment with a competent tax authority in the Mainland, individual applicants should submit their Hong Kong identification certificate, Mainland Pass for Hong Kong Residents, and tax receipt for the last tax year in Hong Kong. Company applicants should provide their certificate of incorporation (duplicate) or business registration certificate (authenticated copy) issued by the relevant authority of Hong Kong.

Tax authorities in the Mainland will make a written request for a Certificate of Resident Status issued by the Inland Revenue Department (IRD) of Hong Kong to verify the application of applicants in the following circumstances:

  • Applicants who claim beneficial owner status under Article 3 of SAT Announcement [2012] No. 30;
  • Applicants who declare tax treatment under Article 13 of Hong Kong – China Mainland DTA (which specifies the collection of taxes under property gains);
  • Companies registered outside of Hong Kong but with administration and controlling institutions in Hong Kong;
  • Foreign individuals who only stay in Hong Kong for a short period but declare themselves to be a Hong Kong resident; or
  • Other circumstances where the documents provided by the applicants are not solid enough to convince tax authorities of their resident status.

Applicants are responsible for taking the written request made by the tax authorities of the Mainland to the Hong Kong IRD in order to apply for the Certificate of Resident Status. The laws of Hong Kong will be applied in determining the resident status.

Generally, the tax authorities of the Mainland should notarize the Certificate of Resident Status as long as the following documents are provided:

  1. A copy of the written request for the Certificate of Resident Status made by the tax authorities of the Mainland to Hong Kong IRD;
  2. A copy of the application form filled in by the applicants and submitted to Hong Kong IRD; and
  3. The original Certificate of Resident Status issued by Hong Kong IRD (duplicate copy is acceptable with justifiable reason).

However, the Mainland tax authorities still have the right to conduct further examinations on the authenticity of the status of applicants if they believe it is necessary, including asking for more documentation or seeking confirmation from Hong Kong IRD.

Additional Notes
Article 3 of SAT Announcement [2012] No. 30 stipulates that the status of “beneficial owner entitled to the dividends derived from China” can be granted if:

  • The applicant is a Hong Kong resident enterprise that is publicly listed in China; or
  • The HK enterprise is 100 percent directly or indirectly owned by a Hong Kong resident company publicly listed in China, and dividends are derived from holding shares of the listed company.

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