Under the terms of a new Double Tax Agreement, individuals who travel frequently between Hong Kong and the mainland may need to take greater care in monitoring their travel arrangements.
The new Double Tax Agreement (DTA) was reached between the Central Government and the Government of the Hong Kong SAR on 21 August 2006. This replaces that signed in February 1998. At time of writing, this still had to be ratified by both sides. Assuming it is, it will go into force on or after 1 January 2007 for mainland taxpayers, and 1 April 2007 for Hong Kong taxpayers. There are a number of important elements worthy of note :
Income from Employment
There is an important change in the basis period for counting the number of days of presence in the mainland for Hong Kong employees who frequently visit the mainland, from a calendar year to a 12-month period. This will make it harder for tax residents on one side to claim exemption from taxes on the other side.
Under the new DTA, a resident of one side is exempt from tax on the other side if they satisfy all the following criteria :
- They are present on the other side for period or periods not exceeding an aggregate of 183 days in any 12-month period commencing or ending in the taxable period concerned
- The remuneration is paid by, or on behalf of, an employer who is not a resident of the other side
- The remuneration is not borne by a permanent establishment that the employer has on the other side
For example, then, under the new DTA, to be exempt from China IIT in the tax year ending 31 December 2008, an individual would need to spend no more than 183 days in mainland China in any 12-month period between 2 January 2007 and 30 December 2009. Equally, to be exempt from Hong Kong salary tax for the tax year ending 31 March 2008, an individual would need to spend no more than 183 days in Hong Kong in any 12-month period between 2 April 2006 and 30 March 2009.
