Feelers put out abroad for more double taxation pacts
The Government says it is exploring agreements with several other countries aimed at helping employees and companies avoid double taxation on income in the wake of an agreement struck with Beijing earlier this month.
Secretary for the Treasury Kwong Ki-chi said yesterday Hong Kong and mainland tax officials had signed a memorandum for the avoidance of double taxation covering such sectors as shipping, aviation, land transport, permanent establishments, services and personal tax.
The arrangement is consistent with agreements made between the mainland and other governments, and is in line with provisions in the OECD's double taxation relief model.
'The arrangement will ease the concern and lower the tax liability of Hong Kong residents working and enterprises operating on the mainland,' Mr Kwong said.
He said the Government would also explore similar agreements with several other countries.
The arrangement needs to be passed by the Chief Executive in Council and the Provisional Legislative Council, and the arrangement is expected to be effective on April 1 in Hong Kong and July 1 on the mainland.
Under the deal, the profits of a Hong Kong enterprise would be taxable only in Hong Kong unless it operates on the mainland through a permanent establishment.
Hong Kong enterprises which carry on business through a permanent establishment on the mainland may be taxed on the mainland but the liability would be restricted to profits attributable to that permanent establishment.
The term 'permanent establishment' is defined as all establishments except facilities or a fixed place for storage, display or delivery of goods, purchasing goods, advertising, collecting information or other preparatory or ancillary activities.
Under the agreement, projects or supervisory activities carried out by a Hong Kong enterprise on the mainland within six months will not be subject to mainland tax.
Income from aviation, shipping and land transport operations carried out by Hong Kong enterprises on the mainland is exempt from mainland tax.
Hong Kong residents providing services on the mainland will not need to pay mainland income tax if they stay less than 183 days, longer than the current 90 days.
Hong Kong will provide tax credit relief for Hong Kong residents who suffer double taxation on the mainland.
Mr Kwong said the arrangement would have cost Hong Kong about $15 million if were in place in the 1996-97 year.