The Fourth Protocol to Arrangement for Avoidance of Double Taxation

On 1 April 2015, HKSAR signed the Fourth Protocol to the Arrangement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income with the Mainland (the Fourth Protocol). The Fourth Protocol clarifies the conditions under which an investment fund would be qualified for Hong Kong resident status It gives certainty to investment funds' application of the tax avoidance arrangements.

Under to the Forth Protocal, a new provision was agreed to add by both HKSAR and the Mainland, regarding the gains derived from the sale and purchase of shares in listed companies. According to the new provision, the gains derived by a Hong Kong resident from the sales and purchase of shares in a Mainland listed company shall be taxable only in Hong Kong. It is also applicable to the a Hong Kong resident derived gains from the sale and purchase of A shares listed on the Shanghai Stock Exchange, under the Shanghai-Hong Kong Stock Connect. Besides, investment funds complying with the requirements as set out in the provision also applicable for the new provision.

Secondly, The Forth Protocol amends the tax liability of royalties received by aircraft and ship leasing business. The Mainland withholding tax on royalties paid to aircraft and ship leasing business, currently at 7%, will be decreased to 5%.

In additions, the Fourth Protocol expands the coverage of tax types under the exchange of information arrangement of the avoidance of double taxation arrangement.

For the details of the the Fourth Protocol (only Chinese version),  please refer to the Inland Revenue Website

www.ird.gov.hk/chi/pdf/Protocol_Mainland_HongKong.pdf

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