The Secretary for Financial Services and the Treasury Professor K C Chan and the Deputy Commissioner of the State Administration of Taxation, Mr Zhang Zhiyong, 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 on the 1st of April, 2015.
According to an official press release, professor Chan stated:
"We are very pleased to sign the Fourth Protocol with the Mainland to facilitate clear implementation of the relevant arrangement. The Fourth Protocol clarifies the conditions under which an investment fund would be qualified for Hong Kong resident status, thus giving certainty to investment funds' application on the tax avoidance arrangements. This will be conducive to the actively promoted asset management businesses in Hong Kong, and will in turn help strengthen Hong Kong's status as an international financial centre."
According to the provisions of the Fourth Protocol, the gains derived from the sales and purchase of shares in a Mainland listed company shall be taxable only in Hong Kong. The same rule applies to the gains derived by a Hong Kong resident from the sale and purchase, under the Shanghai-Hong Kong Stock Connect, of A shares listed on the Shanghai Stock Exchange.
Furthermore, the Forth Protocol also amends the tax liability of aircraft and ship leasing business' receiving royalties. The Mainland withholding tax on royalties paid to aircraft and ship leasing businesses will be capped at 5%. The Fourth Protocol also expands the coverage of tax types under the exchange of information arrangement of the avoidance of double taxation agreement in order to fulfill Hong Kong's international obligation to meet the global standards for enhancing tax transparency.
The Fourth Protocol will come into force upon completion of ratification procedures and notification by both sides.
To read the official press release and for details of the Fourth Protocol (only in Chinese version) please
click here.
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