OFFSHORE Series | Starting from June 12th, there are new changes for Hong Kong companies applying for residency to avoid double taxation!
For cross-border investors holding Hong Kong companies, applying for Hong Kong residency is crucial as it is key to enjoying the benefits of Double Taxation Treaties/Arrangements.
On June 8th, 2023, the Inland Revenue Department of the Hong Kong Special Administrative Region (IRD) announced a set of new forms for applying for the "Hong Kong Certificate of Residency" (HKCoR) under tax treaties/arrangements.
These new application forms will be effective starting from June 12th, 2023.
Key Changes in the New Forms
Against the backdrop of strengthened international tax cooperation and evolving business environment, the IRD has updated the procedures for issuing Certificates of Residency.
The IRD emphasizes that the issuance of Certificates of Residency will only take place after comprehensive Double Taxation Agreements/Arrangements signed between Hong Kong and relevant tax jurisdictions come into effect.
Specifically, the new application forms formalize the administrative facilitation measures related to the application of Certificates of Residency under the provisions of the "Announcement on Issues oncerning Beneficial Owners in Tax Agreements" (Announcement 9) issued by the State Taxation Administration.
Points to Note in Filling Out the New Forms
According to the new forms, if the applicant intends to apply for tax relief on "dividends" and the application falls within the scope of Article 3 or Article 4 of Announcement 9, they must complete Part 2 of Appendix IR1313A and follow the instructions in Note 3 of the new forms. Note 3 requires the following:
The applications for Certificates of Residency for the principal applicant and joint applicant(s) should be submitted together.
Any non-individual applicant can be designated as the principal applicant to provide information on behalf of all applicants and act as the main contact point.
Both the principal applicant and each joint applicant must complete their respective forms.
Reminder from Our Company
We understand that the Hong Kong Certificate of Residency is a document issued by the IRD to Hong Kong residents, serving as proof of their tax residency in Hong Kong for the purpose of applying for tax treaty/arrangement benefits.
Generally, an applicant will receive one Certificate of Residency per tax treaty/arrangement annually. According to the "Arrangement for the Avoidance of Double Taxation on Income between Mainland China and the Hong Kong Special Administrative Region" (the Arrangement), the Certificate of Residency is valid for three years, which is convenient.
It is important to note that the issuance of the Certificate of Residency does not guarantee the successful application for tax treaty/arrangement benefits, as the final determination is made by the tax authorities of the contracting parties. For example, whether a Hong Kong company's shareholders can enjoy tax exemptions will be determined by the tax authorities in the Mainland.
Furthermore, not all Hong Kong companies applying for Certificates of Residency will be approved by the IRD, as it depends on whether they have substantial operations or control in Hong Kong. The IRD assesses the tax residency based on the company's day-to-day operations and various decision-making activities. Additionally, the IRD considers whether the company is the beneficial owner of the relevant income and whether there is any abuse of tax treaties/arrangements for tax avoidance.
Currently, Hong Kong has signed tax treaties/arrangements for the avoidance of double taxation with over 40 countries and regions. If you are interested in applying for Hong Kong residency for your company to enjoy the benefits of double taxation avoidance (especially the preferential arrangements between Mainland China and Hong Kong), please feel free to contact our professionals.
-END-