International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

China: Fourth protocol to the China – Hong Kong tax treaty

ho.jpg

lu.jpg

Khoonming Ho


Lewis Lu

On April 1 2015 the governments of the People's Republic of China (PRC) and the Hong Kong SAR signed the Fourth protocol (the Protocol) to the China – Hong Kong double tax arrangement (DTA) of 2008. The Protocol provides 'best-in-class' tax treaty provisions for Hong Kong enterprises undertaking aircraft and ship leasing from the mainland and those conducting cross-border public market securities investment activities. These treatments would boost Hong Kong's development as a capital equipment leasing hub and as an asset management centre. For royalty withholding tax, lease rentals derived from aircraft and ship leasing businesses (excluding the interest portion under a finance lease arrangement), covered under the DTA's royalties article, are now subject to a reduced rate of withholding tax (WHT) of 5%, down from 7%.

For capital gains, the Protocol also provides clarifications that capital gains derived from shares trading where both the purchase and sale of shares in listed companies on a recognised exchange platform by either Hong Kong or China enterprises, will be exempt from tax in the jurisdiction where listed shares are transacted. Clarifications are also provided to permit an investment fund, established in Hong Kong, to be considered as tax resident in Hong Kong and therefore to be eligible for this listed shares relief in its own right.

And for treaty abuse and exchange of information, as has been the trend for new and updated DTAs of China over the past three years, the Protocol inserts anti-avoidance rules in the dividend, interest, royalties and capital gains articles providing that DTA benefits will not be available if the main purpose for entering into an arrangement was to secure a more favorable tax position. The Protocol also extends the definition of PRC taxes subject to the exchange of information article under the DTA to include VAT, consumption tax, business tax, land appreciation tax and real estate tax.

The Protocol is highly advantageous to Hong Kong and the revised DTA offers significant comparable benefits to Hong Kong enterprises conducting cross-border investments and business activities with the mainland. In addition, it follows China's general DTA update policy and is aligned with China's recent focus on BEPS.

Khoonming Ho (khoonming.ho@kpmg.com)

KPMG, China and Hong Kong SAR

Tel: +86 (10) 8508 7082

Lewis Lu (lewis.lu@kpmg.com)

KPMG, Central China

Tel: +86 (21) 2212 3421

more across site & bottom lb ros

More from across our site

The forum heard that VAT professionals are struggling under new pressures to validate transactions and catch fraud, responsibilities that they say should lie with governments.
The working paper suggested a new framework for boosting effective carbon rates and reducing the inconsistency of climate policy.
UAE firm Virtuzone launches ‘TaxGPT’, claiming it is the first AI-powered tax tool, while the Australian police faces claims of a conflict of interest over its PwC audit contract.
The US technology company is defending its past Irish tax arrangements at the CJEU in a final showdown that could have major political repercussions.
ITR’s Indirect Tax Forum heard that Italy’s VAT investigation into Meta has the potential to set new and expensive tax principles that would likely be adopted around the world
Police are now investigating the leak of confidential tax information by a former PwC partner at the request of the Australian government.
A VAT policy officer at the European Commission told the forum that the initial deadline set for EU convergence of domestic digital VAT reporting is likely to be extended.
The UK government shows little sign of cutting corporate tax, while a growing number of businesses report a decline in investment as a result of the higher tax burden.
Mariana Morais Teixeira of Morais Leitão overviews Portugal’s new tax incentive regime designed to boost the country’s capital-depleted private sector.
Septian Fachrizal, TP analyst at the Directorate General of Taxes, outlines how Indonesia is relying heavily on the successful implementation of pillar one.