China Clarifies Recognition of Resident Enterprises Under Hong Kong DTA

Posted by Reading Time: 4 minutes

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.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across Asia by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

Related Reading

China-Tax-Guide-2013-thmbThe China Tax Guide: Tax, Accounting and Audit (Sixth Edition)
This edition of the China Tax Guide, updated for 2013, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China operations.

AB-Tax-Treaties-CoverAn Introduction to Tax Treaties Throughout Asia
In this issue of Asia Briefing Magazine, we take a look at the various types of trade and tax treaties that exist between Asian nations. These include bilateral investment treaties, double tax treaties and free trade agreements – all of which directly affect businesses operating in Asia.

Understanding Permanent Establishments in China
This issue of China Briefing Magazine casts some light on permanent establishment status in China by discussing the circumstances triggering a PE in China, focusing on Service PEs. We also discuss the tax implications for a non-resident enterprise where its activities in China constitute a Service PE in the country, and address the taxation of representative offices.

Repatriating Profits and Dividends from China

Leave a Reply

Your email address will not be published. Required fields are marked *