As far as
Hong Kong salaries tax is concerned, a much greater tax relief is already
given under Section 8(1A)(c) of Inland Revenue Ordinance which is to exempt
the income derived
from non-Hong Kong services on which foreign income tax has been paid. Because the
tax benefit under double
taxation relief is generally less than that under Section 8(1A)(c)
exemption, DTR is almost useless to taxpayers.
Even if DTR is to apply --- in such case the mainland-sourced income
must be brought
into the Hong Kong tax computation --- the tax credit in respect of the mainland tax is
restricted to the hypothetical Hong Kong tax payable in respect of the
hypothetical mainland-sourced income, i.e. maximum tax credit = H. K.
effective tax rate * mainland's income after mainland tax / (1 - H.
K. effective tax rate). In effect, the restriction makes Double Taxation
Relief less favourable than Section 8(1A)(c).
computing the Hong Kong tax, the mainland tax payment not yet allowed as
tax credit is allowable as a deduction from the assessable income.
Press here for an illustration of computation of tax credit. For more,
please visit the
IRD's web site and read
and Practice Note No.
comment: A common employee
working both in Hong Kong and mainland China
should seek relief under
Section 8(1A)(c) exemption.
If he works only in mainland China, he should seek
full exemption of
Salaries Tax. Only when Section 8(1A)(c) relief or full exemption is
inapplicable (for example the taxpayer holds a director office with a limited company
in Hong Kong) should he apply for double taxation relief.
Introduction to China tax