Certificate of Residence Hong Kong – A Document Required for Claiming Tax Benefits under Hong Kong’s DTA’s

5 February 2015

Currently, Hong Kong has entered into 28 double taxation agreements (‘DTA’) under which a Hong Kong tax resident is potentially entitled to tax treaty benefits, such as enjoying a preferential tax rate in respect of the withholding tax on passive income, e.g. dividend income, interest income and royalty income, charged by the DTA partners of Hong Kong. In order to enjoy the tax benefits, it is required to obtain a Certificate of Resident Status (‘Resident Certificate’) from the Hong Kong Inland Revenue Department (‘HK-IRD’) as a proof of this Hong Kong resident status.

 

Eligible Parties for Tax Residency Certificate 

 

In general, the following persons and entities are eligible to apply for the Resident Certificate:

  • An individual who ordinarily resides in Hong Kong;
  • An individual who stays in Hong Kong for more than 180 days during a year of assessment or for more than 300 days in 2 consecutive years of assessment, one of which is the relevant year of assessment;
  • A company, partnership, trust or other body of persons incorporated or constituted in Hong Kong; and
  • A company, partnership, trust or other body of persons incorporated or constituted  outside Hong Kong but managed and controlled in Hong Kong.

 

Application Forms

 

In order to obtain such Resident Certificate, it is required to provide the HK-IRD with an application form together with the relevant required documents. It usually takes about 21 working days for the HK-IRD to assess the application.

With effect from 1 February 2015, the Resident Certificate application forms to be completed by a company, partnership, trust or other body of persons, either incorporated in Hong Kong or outside of Hong Kong (collectively referred as ‘Companies’) and which Companies are applying the DTA between Hong Kong and Mainland China or the DTA between Hong Kong and tax jurisdictions other than Mainland China, have been amended and revised. The major changes are summarised as follows:

When applying for tax benefits under the Hong Kong/Mainland China DTA, Hong Kong incorporated Companies and non-Hong Kong incorporated Companies will now both be using the same revised application form; whereas different application forms were used by Hong Kong incorporated Companies and non-Hong Kong incorporated Companies prior to the change on 1 February 2015.

 

Required Documentation

 

Hong Kong incorporated Companies applying for tax benefits under the Hong Kong/Mainland China DTA are now required (as has already been the case for non-Hong Kong incorporated Companies) to submit additional information on the revised application form. In particular, Hong Kong incorporated Companies have to provide:

  1. The details of their establishments and business activities in and outside Hong Kong
  2. The details of their managerial personnel and staffing
  3. The place(s) where their management and control are exercised.

Furthermore, both Hong Kong and non-Hong Kong incorporated Companies applying for tax benefits under the Hong Kong/Mainland China DTA are now also required to supply additional information such as:

  • The principal bankers of the Companies in Hong Kong
  • The total number of bank accounts maintained in Hong Kong
  • The nature of permanent establishment maintained in Hong Kong
  • The balance of cash at bank stated in the statement of financial position as at the end of the last reporting period.

In respect of Hong Kong and non-Hong Kong incorporated Companies that are applying for tax treaty benefits under the DTA between Hong Kong and tax jurisdictions other than Mainland China, these Companies will now be required to provide additional information including information on:

  • The principal bankers of the Companies in Hong Kong
  • The total number of bank accounts maintained in Hong Kong
  • The nature of permanent establishment maintained in Hong Kong
  • The balance of cash at bank stated in the statement of financial position as at the end of the last reporting period.

 

Implications of the revised Application Forms

 

The requirements for Hong Kong incorporated Companies, when applying for a Resident Certificate under the DTA between Hong Kong and Mainland China, to supply additional comprehensive information implies that the HK-IRD will adopt a more tightened approach in assessing whether these Companies are proper Hong Kong tax residents and this change may be due to the request of the Mainland China tax authorities for a stringent resident status assessment by the HK-IRD. At the same time, obtaining a Resident Certificate under a DTA between Hong Kong and tax jurisdictions other than Mainland China, has become more burdensome and difficult. Therefore, these amendments will likely require existing Hong Kong incorporated Companies/non-Hong Kong incorporated Companies benefitting from DTA’s, to review their existing ‘substance’ in Hong Kong.

If you have any questions regarding the above or other tax matters, please do not hesitate to contact us on +852 2804 0889 or by email [email protected].

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