Secretary for Financial Services & the Treasury Prof KC Chan signed the fourth protocol to an agreement for the avoidance of double taxation and the prevention of income tax evasion with the Mainland today.
He signed it with State Administration of Taxation Deputy Commissioner Zhang Zhiyong in Hong Kong.
Prof Chan said that the protocol clarifies the conditions under which an investment fund would be qualified for Hong Kong resident status, thus giving certainty to investment funds' application of the tax avoidance arrangements.
He said it will be conducive to the asset management businesses in Hong Kong, and will in turn help strengthen the city's status as an international financial centre.
The gains derived by a Hong Kong resident from the sales and purchase of shares in a Mainland listed company will be taxable only in Hong Kong. This is also applicable to the gains derived by a Hong Kong resident from the sale and purchase of stocks under the Shanghai-Hong Kong Stock Connect.
The agreement also states the arrangement of such a tax liability will be applicable to those investment funds complying with the requirements as set out in the provision.
The 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 business, currently at 7%, will be capped at 5%.
This protocol will come into force after the completion of ratification procedures and notification by both side.
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