News Flash
Hong Kong Tax
Easier to substantiate Hong Kong
tax resident status under the HK
HKMainland CDTA
October 2013
Issue 11
In brief
Recently the State Administration of Taxation (SAT) issued the Public Notice [2013] No. 53 (Public
Notice 53) addressing the guidelines for recognition of the Hong Kong tax resident status under the
comprehensive double tax arrangement (CDTA) entered between
between Hong Kong and the Mainland (the
HK-Mainland
Mainland CDTA). Effective from 1 November 2013, Hong Kong incorporated companies can use its
certificate of incorporation to substantiate its Hong Kong tax resident status in application for a treaty
benefit under the HK-Mainland
HK Mainland CDTA without having to obtain a Hong Kong tax resident certificate
(HKTRC). For non-Hong
Hong Kong incorporated companies, they still have to obtain a HKTRC issued by the
Hong Kong Inland Revenue Department (HKIRD). At the same time, Mainland tax au
authorities appear to
be more receptive to the HKTRC issued by the HKIRD,
HKIRD but there are specific circumstances whereby the
Mainland tax authorities would require further assessment on the tax residency of the applicant.
In detail

Clarification on
substantiating the Hong
Kong tax resident status
In the past, some Mainland tax
authorities insisted a HKTRC
be provided for treaty benefit
applications, even though a
Hong Kong incorporated
company iss a Hong Kong tax
resident by definition under the
HK-Mainland
Mainland CDTA. Such
requirement may have delayed
the application process of treaty
benefits in the past.
To improve the application
process, Public Notice 53
clarifies that effective from 1
November 2013, a certificate of
incorporation or a certificate of
business registration, instead of
a HKTRC, should generally be
sufficient for an applicant to
justify its Hong Kong tax
residency status, except in the
following circumstances:

The Mainland tax
authorities have doubts on
the Hong Kong residency
status of the applicant or
the submitted certificate is
not sufficient to prove the
status. This includes
applicants who are not
incorporated in Hong Kong
but claims its place of
management and control is
in Hong Kong.
Hong Kong listed
companies that want to be
treated as the beneficial
owner for dividend income
they received indirectly
from a wholly owned
Chinese subsidiary
according to the safeharbour rule under Article
3 of SAT Public Notice
[2012] No 30 (Public
Notice 30), are still
required to submit a
HKTRC is required for all
intermediary companies in
the chain of ownership no
matter these intermediaries
are a Hong Kong
incorporated company or
not.
In addition, in the past, some
Mainland local tax authorities
were reluctant to issue a
referral letter to the HKIRD for
purpose of HKTRC application.
Now Public Notice 53 clarifies
that if a HKTRC is required for
the treaty benefit application in
the Mainland, the in-charge
Mainland tax authorities should
issue a referral letter for the
applicant to submit to the
HKIRD for HKTRC application
purpose.
Similarly, for individual income
tax purposes a HKTRC is
generally not required for an
individual unless the Mainland
tax authorities are skeptical
www.pwchk.com
News Flash — Hong Kong Tax
about his or her tax residency status,
e.g., a foreign individual who only
temporarily resides in Hong Kong, or
for treaty applications with regard to
capital gains under the HK- Mainland
CDTA. Thus, under most
circumstances, a Hong Kong Identity
Card and a Hong Kong Home Visit
Permit together with the tax payment
certificate in Hong Kong of the
previous year should suffice.
The Mainland tax authorities’
attitude towards HKTRC
In the past, some Mainland tax
authorities were reluctant to process
treaty applications even if the
applicant obtained the HKTRC. This is
probably due to the authorities not
having a full understanding of the
HKIRD’s process for issuing the
HKTRC. This concern was more
common among non-Hong Kong
incorporated company applicants.
In view of the recent change in the
approach by the HKIRD in assessing
HKTRC applications1 , Public Notice
53 makes it clear that the Mainland
tax authorities should in general
accept the HKTRC to substantiate the
Hong Kong tax resident status, as long
as the applicant has submitted the
required documentation2.
Nonetheless, in case of any suspicion,
the Mainland tax authorities are still
able to request additional information
from the applicant in order to further
assess its Hong Kong tax residency
status. Alternatively the authorities
can report to the SAT which may in
turn verify with the HKIRD.
Public Notice 53 specifically indicates
that in a multi-level holding structure,
where both the applicant and its
holding company are not incorporated
2
in Hong Kong, will require further
assessment.
With the clarifications set out in Public
Notice 53, a non-Hong Kong
incorporated company who has
obtained a HKTRC now has a better
chance of being accepted as a Hong
Kong tax resident for treaty benefit
application under the HK-Mainland
CDTA. We believe this may be due to
the Mainland tax authorities’ having a
better understanding of the
developments taken by the HKIRD in
assessing non-Hong Kong
incorporated companies for the
HKTRC application.
The takeaway
With the issuance of Public Notice 53,
Hong Kong incorporated companies
should find it more simple and
straight forward to prove their Hong
Kong tax resident status under the
HK-Mainland CDTA. For these
companies, a copy of the Hong Kong
certificate of incorporation should
serve as sufficient documentation to
prove their Hong Kong tax residency
and a HKTRC is not required. This
latest practice of the Mainland tax
authorities reflects the interpretation
of the HK-Mainland CDTA as under
the Resident article of the CDTA, a
Hong Kong incorporated company is
defined to be (and therefore
automatically becomes) a Hong Kong
tax resident.
On the other hand, non-Hong Kong
incorporated companies (especially for
those intermediaries interposed
between a non-Hong Kong ultimate
holding company and the Mainland
investee) wishing to claim themselves
as a Hong Kong tax resident for
enjoying the treaty benefits under the
HK-Mainland CDTA have to go
through the process of obtaining a
referral letter from the in-charge
Mainland tax authorities and
providing detailed information of their
operations and businesses in and
outside Hong Kong by completing the
revised HKTRC application form.
These companies need to get well
prepared for a closer scrutiny of the
HKIRD on their HKTRC applications
based on the detailed information
provided.
These companies should also be
mindful that a copy of the HKTRC
application form has to be submitted
to the in-charge Mainland tax
authorities together with the HKTRC
issued by the HKIRD. This means that
the information provided in the
application form will be disclosed to
the in-charge Mainland tax authorities
and may be used by them in their own
assessment of the Hong Kong tax
resident status of the non-Hong Kong
incorporated companies in case they
have doubts on the status.
Endnote
1.
By means of using new application
forms, effective from 1 April 2013,
and seeking more comprehensive
information from non-Hong Kong
incorporated companies during the
HKIRD’s assessment. Please refer to
our previous Hong Kong Tax News
Flash 2013 Issue 4 for the details of
the new HKTRC application forms.
2.
Required documentation includes a
copy of the referral letter, a copy of
the HKTRC application form and the
original copy of the HKTRC.
PwC
News Flash — Hong Kong Tax
Let’s talk
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David Smith
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Kenneth Wong
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Scott Lindsay
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[email protected]
Jeremy Ngai
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[email protected]
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