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China-Hong Kong

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Protocol to the Tax Arrangement between China and Hong Kong has Entered into Force

On 29 December 2015, the protocol to the 2006 income tax arrangement between China and Hong Kong entered into force. The protocol, signed 1 April 2015, is the third to amend the arrangement. The protocol:

  • Replaces paragraph 1 of Article 8 (Shipping, Air and Land Transport), clarifying that the tax exemption for income from operation of ships, aircraft or land transport also includes exemption from value added tax and other similar taxes;
  • Reduces the withholding tax on royalties paid to aircraft and ship leasing businesses from 7% to 5% under Article 12 (Royalties);
  • Replaces paragraph 6 of Article 13 (Capital Gains), which includes that gains from the alienation of shares in company resident in one Contracting Party by a resident of the other Party will be taxable only in that other Party if the shares are bought and sold on the same recognized stock exchange; and also clarifies the conditions under which an investment fund would be qualified as a resident of either Party;
  • Adds an anti-abuse provision concerning Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 13 (Capital Gains), where the benefits of those Articles will not apply if the main purpose of the creation or disposal of the relevant interest was to take advantage of those Articles; and
  • Expands the tax types covered by Article 24 (Exchange of information) to include value added tax, consumption tax, business tax, land appreciation tax and real estate tax.

The protocol applies from the date of its entry into force, 29 December 2015.

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