Double taxation relief
taxation means the same income is subject to tax of Hong Kong as well as to
tax of a jurisdiction outside Hong Kong.
Double taxation relief is
the relief granted to certain taxpayers suffering from double taxation. The
relief is usually provided by the various Double Taxation Agreements signed
by the HKSAR Government with other tax jurisdictions. Among them, the most
important one concerning ordinary taxpayers is that made between Hong Kong and
Kong has entered into a number of Double Taxation Agreements with other tax
jurisdictions. Because of the restrictive conditions of such agreements, more than
90% taxpayers do not benefit from such agreements. In fact, the taxpayers getting the tax relief
under DTAs are
mostly the big transportation companies, such as airline and ship
corporations, with substantial operations in and out of Hong Kong. Generally
speaking, the DTAs are of very little value to ordinary taxpayers, even
though they have paid overseas tax.
Apart from the
Double Taxation Relief, there are other tax relief or exemption
under the Inland Revenue Ordinance which can,
in most cases, offer
greater tax benefits --- for example the Section 8(1A)(c) exemption
to employment taxpayers, the offshore
claim of profits and the deduction of
mainland's / foreign tax to business taxpayers. Because
double taxation relief, the application of other tax relief or exemption
under the IRO
make the Double Taxation Arrangement Relief useless to most ordinary taxpayers.
Application for tax credit
under DTA must be made within 2 years after the end of the relevant year of
assessment. On the other hand, as the IRO does not specify a time limit for
Section 8(1A)(c) exemption, the time limit of
Section 70A applies --- that is to say: a taxpayer can make a claim
within 6 years after the end of the relevant year of assessment.
If you want to read the
DT Agreement with mainland China, please visit IRD's homepage
and read Departmental Interpretation
and Practice Notes No. 29 and 32: by clicking [English] > [Publications]
Interpretation and Practice Notes].
According to the
mainland Agreement, tax credit
is granted to two kinds of mainland's taxes: (a) Individual Income Tax and
(b) Corporate Income Tax or Foreign Enterprises Income Tax --- if a taxpayer is a Hong Kong
resident; and has paid the tax on the same income, he may
apply for a tax credit to reduce his Hong Kong tax payable. In the event that the income is not
taxable in Hong Kong, no tax credit will be granted.
Since Hong Kong adopts territorial
taxation principle, the income derived from mainland is generally not
taxable. On the other hand, the Mainland imposes tax on a person,
including an enterprise, if he has a permanent establishment in mainland and
derived profits attributable to that permanent establishment.. Therefore, in most cases, double taxation will not occur.
a taxpayer should claim tax-credit under Double Taxation Agreement if all
the following conditions are satisfied.
The taxpayer pays income tax of Hong Kong and mainland on
the same income.
Where the taxpayer pays Salaries Tax, he is not entitled to
Section 8(1A)(c) exemption or the tax reduction under Section 8(1A)(c)
is less than that under tax-credit computation.
Where the taxpayer pays Profits Tax, the income attributable to
mainland's operation is not excluded by the source principle or by
the 50:50 apportionment.
The taxpayer should
make the claim in his tax return and the IRD will compute the tax
credit by a computer software.
a taxpayer is a Hong Kong resident as well
as a mainland resident, he can enjoy the benefits of the Double Taxation
Arrangements concerning the mainland's income tax. Briefly speaking, such
benefits include: (a) only his income attributable to services rendered in
the mainland is chargeable to Individual Income Tax and (b) he will be
exempt from the Individual Income Tax if all the following conditions are
Hong Kong resident stays in China for a period or periods not exceeding
in the aggregate of 183 days in the 12 months falling in the calendar
year concerned; and
The income is paid by, or on behalf
of, an employer who is not a resident of China; and
income is not borne by a permanent establishment or a fixed base which
the employer has in China.
Individual Income Tax is computed on
calendar year basis, that is from 1 January to 31 December. For counting of
days, the day of departure or arrival is counted as a whole day
a person is required by the mainland tax authorities to prove his Hong Kong
resident status, he needs a "Certificate of Hong Kong Resident
Status". This certificate is issued by Hong Kong IRD upon application.
To apply for the certificate, the person should first obtain a referral
letter from the mainland tax authorities stating such requirement.
Working in China
DTR applies to Profits Tax