Oct 2009, Issue 10 China issued rules on treaty benefit claims by non-residents - What does it mean for Hong Kong tax resident companies? On 24 August 2009, the China State Administration of Taxation ("SAT") issued Guoshuifa [2009] 124 ("Circular 124") setting out comprehensive measures for administering treaty benefit claims of non-tax resident enterprises and individuals of China on their China-sourced income under a Sino-foreign double tax agreement ("DTA"). Circular 124 took effect on 1 October 2009.
According to Circular 124, non-tax residents of China who wish to enjoy a treaty benefit on their China-sourced income under a DTA have to go through either an "Approval-application" procedure (for passive income - dividends, interest, royalties and capital gains) or "Record-filing" procedure (for active income - business profits of a permanent establishment, service fees and personal employment income) in which specific forms attached to Circular 124 have to be submitted to the relevant Chinese tax authorities together with the relevant supporting documentation. For details of the procedures and documentation requirements under Circular 124 and our observations from a China tax perspective, please refer to our China Tax News Flash -
Treaty residents having clearer rules for claiming benefits under double tax agreements (Issue 20, Sep 2009).
This News Flash focuses on the implications of Circular 124 for a Hong Kong incorporated company or a non-Hong Kong company with its management or control in Hong Kong (collectively referred to as "Hong Kong tax resident" hereinafter), wishing to claim treaty benefits under the comprehensive DTA between China and Hong Kong ("Mainland-HK DTA") on their China-sourced income.
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