Arrangements For The Avoidance Of Double Taxation And Prevention Of Tax Evasion By The Mainland And The Hongkong Special Administrative Region.

Notice of the State Administration of Taxation on issues relating to the implementation of the protocol second to the mainland and the Hongkong Special Administrative Region on the avoidance of double taxation and prevention of tax evasion

National tax letter [2008] 685

The state taxation bureaus and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the central government and cities under separate planning shall:

The following second questions concerning the implementation of the protocol on the avoidance of double taxation and prevention of tax evasion in the mainland and the Hongkong Special Administrative Region (hereinafter referred to as the "arrangement") and the exchange of letters between the mainland and Hongkong taxation authority representatives are hereby notified as follows:

I. the time frame of permanent establishment.

Second the third "one hundred and eighty-three days" of the protocol replace the provisions of the fifth paragraph third (two) of the "arrangements" for "six months", which apply to the service activities commencement after the date of the entry into force of the protocol and to those who provide the activity to the mainland.

The service provided by the mainland before the effective date is still determined according to the original calculation time to form a permanent establishment.

Two. Judgement on the composition of the company's property mainly from real estate.

Second in the fourth article of the protocol, the provisions on the pfer of shares of a company by a share holder in the first three years shall be stipulated at least fifty percent of the company's property as an immovable property. If the second article is clearly executed, it shall be judged according to the accounting data at the end of the tax year.

Three. Tax treatment on the pfer of shares or other rights and interests of the company

According to the fifth provision of the second protocol, when implementing the provisions of the fifth paragraph of the thirteenth article of the arrangement, if the resident of Hongkong pfers the proceeds obtained from the shares or other rights and interests of the residents in the mainland resident company, if the beneficiary has directly or indirectly owned over 25% of the shares of the mainland company within twelve months before the pfer, the mainland has the right to levy taxes in accordance with the relevant tax laws and regulations.

*

The previous interpretation of the arrangement is inconsistent with the provisions of this circular, and shall be carried out in accordance with the provisions of this circular.

State Administration of Taxation

July 19th, two, eight