V. Taxation Arrangement between China and Hong Kong (to avoid double taxation)
Information in this part aims to highlight some tax issues affecting Hong Kong residents who are employed both in Hong Kong and in the Mainland.
On 11 February 1998 , Hong Kong and China signed the "Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income" ( the Limited Arrangement ) to allocate the right to tax between the two jurisdictions on a reasonable basis to avoid double taxation of income.
On 21 August 2006 , both parties have signed a more comprehensive arrangement titled "Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income"( the Comprehensive Arrangement ). The Comprehensive Arrangement has broadened the coverage of income by adding income from immovable property, associated enterprises, dividends, interest, royalties, capital gains, pensions and government services, etc.
Tax liabilities in Hong Kong
If a Hong Kong resident provides services both in the Mainland and in Hong Kong,
- the income derived from that person's Hong Kong employment will be wholly assessable irrespective of whether it has been paid by the Hong Kong employer or a Mainland enterprise. However, if that person has paid Mainland Individual Income Tax in respect of the income attributable to services rendered by him/her on the Mainland, he/she may apply for tax exemption for that part of income under the Inland Revenue Ordinance or for a tax credit under the Comprehensive Arrangement . In general, tax exemption provides greater tax relief than would be provided by tax credit; and
- the income derived from that person's non-Hong Kong employment will be assessed according to the number of days in Hong Kong irrespective of whether it has been paid by the overseas employer or a Mainland enterprise, provided that his/her visits to Hong Kong exceed 60 days and during which he/she renders services.
Tax liabilities in Mainland China
If a Hong Kong resident under his/her employment renders services on the Mainland only (i.e. services are not rendered whilst in Hong Kong), all the income from that employment will be regarded as attributable to services rendered on the Mainland. Such income is wholly chargeable to Mainland tax, irrespective of whether it is paid by a Mainland enterprise or an overseas employer (including a Hong Kong employer) UNLESS that person satisfies the three conditions as follows:
- the Hong Kong resident stays in the Mainland for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned; and
- the income is paid by, or on behalf of, an employer who is not a resident of the Mainland; and
- the income is not borne by a permanent establishment or a fixed base, which the employer has in the Mainland.
If a Hong Kong resident under an employment renders services both in the Mainland and in Hong Kong, his/her Mainland tax liabilities will be determined as follows:
Aggregated periods of stay in the Mainland not exceeding 183 days
Income paid or borne by the Mainland entity will be chargeable to Mainland Individual Income Tax. Tax will be calculated on the chargeable income and then apportioned on time basis. Income paid by an overseas employer (including a Hong Kong employer) is not chargeable.
Aggregated periods of stay in the Mainland exceeding 183 days
The total income received from the Mainland entity and the overseas employer (including Hong Kong employer) will be chargeable to Mainland Individual Income Tax. Tax will be calculated on the total income and then apportioned on time basis.
Some frequently asked questions can be found on the website of the Inland Revenue Department. You may also read the Departmental Interpretation and Practice Notes No.44 issued by the IRD for more details about the Comprehensive Arrangement.
Making appeals or enquiries
A Hong Kong resident who wishes to dispute a tax assessment in Hong Kong may, by notice in writing to the Commissioner of Inland Revenue, Hong Kong, object to the assessment within one month after the date of the notice of assessment.
Where a Hong Kong resident considers that the Mainland tax imposed is not in line with the Arrangement, he/she should raise the issue with the relevant Mainland tax authority within the specified period (Note: If you cannot find out the contact details of Mainland tax authority, check with the Hong Kong Inland Revenue Department). If the matter could not be resolved, he/she may seek assistance from the Hong Kong IRD by submitting relevant information for examination. The IRD will consult the Mainland tax authority concerned, with a view to resolving the problem.
For enquiries on matters relating to the Arrangement, you may send an email to the IRD at firstname.lastname@example.org, or telephone: 187 8088.