FAQ : Double Taxation Relief

The following set of Q&A only applies to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income ("the Arrangement") signed in 1998.
1.	How can I obtain more details and information about the Arrangement?[Answer]
2.	If I own properties both on the Mainland and in Hong Kong for the use of myself and my family, will I be regarded as a Mainland resident and be chargeable to tax on my global income on the Mainland?[Answer]
3.	I am a Hong Kong resident and employed by a Hong Kong company and have been assigned to work in a mainland factory as the factory manager. In 2006, my total income was HK$120,000 and was paid by the Hong Kong company. During the year, I stayed on the mainland for 244 days. The mainland factory had reported my income to the local tax authority. Individual income tax on the whole amount of my income was paid on the mainland. Is the relevant income chargeable to tax in Hong Kong?[Answer]
4.	I am a Hong Kong resident and employed by a mainland enterprise in the capacity of financial controller of the group of which the enterprise is a member and have to provide services both on the mainland and in Hong Kong. In 2006, I stayed on the mainland for 244 days and in Hong Kong for the rest of the time. During the year, I was also the director of the enterprise and received a director's fee. What are my tax liabilities on the two incomes in both places?[Answer]

Questions and Answers

1.

Q:

How can I obtain more details and information about the Arrangement?

	A:	The Inland Revenue Department has issued three pamphlets to explain in simple and clear terms how the Arrangement is applied and implemented. They are:
			Arrangement between the Mainland of China and the HKSAR for Avoidance of Double Taxation – Guide for Enterprises
			Arrangement between the Mainland of China and the HKSAR for Avoidance of Double Taxation – Guide for Personal Services
			Arrangement between the Mainland of China and the HKSAR for Avoidance of Double Taxation – A Guide for Hong Kong Residents Working across the Mainland Border

2.

Q:

If I own properties both on the Mainland and in Hong Kong for the use of myself and my family, will I be regarded as a Mainland resident and be chargeable to tax on my global income on the Mainland?

	A:	The Mainland resident status and Hong Kong resident status should be determined in accordance with the respective laws or regulations of each side. If you are regarded as a resident on both sides based on their respective definitions, your resident status would be determined by the rules listed in the Arrangement. For details about the rules, please refer to paragraph 6 of "A Guide for Hong Kong Residents Working across the Mainland Border". If you are regarded as a Mainland resident under the rules of the Arrangement, you are required to pay Mainland tax in accordance with the tax laws of the Mainland. Should part of your income have also been taxed in Hong Kong thus leading to double taxation, you should apply for double taxation relief with the relevant Mainland tax authority. If you qualify as a Hong Kong resident under the rules of the Arrangement, you are still entitled to benefits under the Arrangement in the Mainland. Where part of your income is subject to double taxation, you should apply to the Inland Revenue Department of Hong Kong for double taxation relief.

3.

Q:

I am a Hong Kong resident and employed by a Hong Kong company and have been assigned to work in a mainland factory as the factory manager. In 2006, my total income was HK$120,000 and was paid by the Hong Kong company. During the year, I stayed on the mainland for 244 days. The mainland factory had reported my income to the local tax authority. Individual income tax on the whole amount of my income was paid on the mainland. Is the relevant income chargeable to tax in Hong Kong?

	A:	Your tax liability on the mainland should be computed based on the remuneration derived from the employment exercised on the mainland. Generally speaking, the tax will first be calculated on your total income. Then, the actual amount of tax payable will be computed by reference to the number of days you have stayed on the mainland as follows:
		Total tax amount x 244/366.
		As part of your income is derived from services rendered in a territory outside Hong Kong and the income has been charged in that territory to tax of substantially the nature as salaries tax, the relevant income may be exempted from tax in Hong Kong by virtue of section 8(1A) (c) of the Inland Revenue Ordinance. The part of income that is exempted from tax is:
		HK$120,000 x 244/366.
		You may also apply for a tax credit under the Arrangement. The amount of the tax credit will also be computed by reference to the income attributable to services rendered on the mainland. In general, tax exemption provides greater relief than would be provided by tax credit.

4.

Q:

I am a Hong Kong resident and employed by a mainland enterprise in the capacity of financial controller of the group of which the enterprise is a member and have to provide services both on the mainland and in Hong Kong. In 2006, I stayed on the mainland for 244 days and in Hong Kong for the rest of the time. During the year, I was also the director of the enterprise and received a director's fee. What are my tax liabilities on the two incomes in both places?

	A:	Since you are employed as a senior managerial officer and at the same time are a director of a mainland enterprise, the whole amount of your income from the enterprise, including the financial controller's income and the director's fee, is chargeable to individual income tax under mainland tax laws. In Hong Kong, the director's fee from the mainland enterprise is not chargeable to tax. As regards the financial controller's income, because you are holding a "non-Hong Kong employment", you are liable to Hong Kong salaries tax only in respect of income from services rendered in Hong Kong. The salaries tax payable is normally calculated based on the number of days you have stayed in Hong Kong. According to the provisions of the Arrangement, Hong Kong has the absolute right to tax this income and need not share the taxing right with the mainland. Therefore, the individual income tax paid by you on the mainland in respect of that income will not be eligible for tax credit relief in Hong Kong. Neither are you entitled to exemption under section 8(1A)(c) of the Inland Revenue Ordinance because only that part of the financial controller's income attributable to services rendered in Hong Kong has been taxed in Hong Kong.