Substance is important - HKIRD revises the application form for Hong Kong tax resident certificate
A set of new forms for applying a Hong Kong tax resident certificate (“HKTRC”) under a comprehensive double tax agreement/arrangement (“CDTA”) for corporations has recently been issued by the Hong Kong Inland Revenue Department (“HKIRD”). The new forms should be used for HKTRC applications starting from 1 February 2015.
The key change is that a same revised form (which requests for comprehensive information) will now be used for both Hong Kong incorporated companies and non-Hong Kong incorporated companies. Before the change, a Hong Kong incorporated company was not required to provide detailed information about its Hong Kong operations though the HKIRD may request such information when it had reason to believe that the applicant would not be entitled to benefit under a CDTA. The change echoes the HKIRD’s policy of “upholding the terms and purpose of Hong Kong’s CDTAs by not issuing Certificate of Residence Status to those who are clearly not entitled to relief from foreign taxes” through examination of factors beyond the definition of a Hong Kong resident under the relevant CDTA, including the Mainland-Hong Kong CDTA. Going forward, the HKIRD will consider whether the applicant has sufficient substance in Hong Kong, whether it is the beneficial owner of the income concerned and whether there is any indication of treaty abuse / treaty shopping in issuing a HKTRC. This News Flash will discuss the key changes of the form and share our observation on the implications which will affect the future HKTRC application made under the Mainland - Hong Kong CDTA.
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