Being an international financial centre, Hong Kong has entered into various comprehensive double taxation agreements (“CDTAs”) with different countries and/or jurisdictions. A resident of either or both of the contracting parties to a CDTA is eligible to claim tax benefits under the respective CDTA.
To claim tax benefits under the terms of a CDTA, an entity is generally required by the source state to produce a Certificate of Resident (“COR”) issued by the Hong Kong Inland Revenue Department (“HKIRD”) to confirm resident status. In the past, an applicant for a COR of Hong Kong resident was only required to submit its minimal basic information should it be an entity incorporated or constituted under Hong Kong laws.
In February 2015, in order to strengthen the review of COR applications, HKIRD has revised and released new application forms (IR Forms 1313A and 1313B) which particularly require COR applicants to provide detailed information to demonstrate the extent of their business substance in Hong Kong and that their normal management or control resides in Hong Kong. HKIRD will not consider issuing COR to applicants who will not be entitled to tax benefits claim under a CDTA, regardless whether it is a Hong Kong company or not. It particularly relates to applicants who are not the beneficial owner of the income concerned or that the arrangement in question is normally believed to be abusing the terms of a CDTA.
In August 2015, the State Administration of Taxation of PRC issued the Public Notice (2015) No.60 to introduce new procedures for tax benefits claim under tax treaties of China. In particular, taxpayers or their withholding agents are required to perform self assessment of their eligibility to claim tax treaty benefits and to submit corresponding forms and supporting documents to the China tax authority, including a Hong Kong COR for claims under CDTAs between Hong Kong and China. The new procedures increased the reporting duty and responsibility of taxpayers or withholding agents whereas at the same time gave less certainty to tax benefits claim by a Hong Kong resident.
Companies should obtain consultation from professionals on the new application requirements whenever necessary.