As far as
Hong Kong profits tax is concerned, Section 14 of Inland Revenue Ordinance
stipulates that only profits arising in or derived from Hong Kong is
taxable. Besides, for manufacturers operating across the border, their taxable profits are
generally apportioned on a 50:50 basis. Furthermore, Section 16 permits
deduction for mainland's / foreign taxes paid in the production of the assessable
profits. In fact, these measures make double taxation relief largely
This is because the tax benefits under these measures generally exceed that available under
Double Tax Relief (DTR).
Press here for more.
In fact, 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 of tax credit makes Double Taxation Relief less
favourable than the offshore claim which is to exclude the whole offshore profits
from assessable profits. That is to say, the taxpayer should try offshore
claim first before applying for double taxation relief.
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
and Practice Note No.