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Apr 2015, Issue 13

Amendments to the China-Hong Kong double tax arrangement bring benefits as well as obligations to taxpayers

Mainland China and Hong Kong signed the Fourth Protocol to the double tax arrangement between China and Hong Kong (China-HK DTA) in Hong Kong on 1 April 2015. The most important amendment which will benefit the Hong Kong taxpayers by the Fourth Protocol is to provide tax exemption in China for gains derived by Hong Kong tax residents and "Hong Kong resident investment funds" (as defined in the protocol) from disposal of shares of Chinese companies listed on recognised stock exchanges, provided certain conditions are met. Other amendments are (1) reducing the withholding tax rate for rentals from aircraft leasing and ship chartering to 5%; (2) introducing the main purpose test to the Dividends, Interest, Royalties and Capital Gains articles as an additional anti-treaty abuse measure and (3) expanding the scope of information exchange under the DTA to cover information related to taxes other than income taxes in China.

The Fourth Protocol shall enter into force after completion of internal procedures in both China and Hong Kong. It is expected to be effective within 2015.

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