Agreement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes

Agreement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes

August 21th, 2006

The mainland of China and the Hong Kong special administration region, for the purpose of the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, have agreed as follows:

Article 1 Personal Scope
This Agreement shall apply to persons who are residents of one or both of the Contracting States.

Article 2 Taxes Covered
1. This Agreement shall apply to taxes on income imposed on behalf of a Contracting State or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.
2. There shall be regarded as taxes on income all taxes imposed on total income or on elements of income, including taxes on gains from the alienation of movable or immovable property and taxes on capital appreciation.
3. The existing taxes to which the Agreement shall apply are:
(1) In the mainland of China:
A. The individual income tax:
B. The income tax for enterprises with foreign investment and foreign enterprises
(2) In Hong Kong
A. Profits tax
B. Salaries tax
C. Property tax
Whether or not charged under personal assessment.
4. This Agreement shall also apply to any identical or substantially similar taxes which are imposed after the date of signature of this Agreement in addition to, or in place of, the existing taxes referred to in paragraphs 1 or 2 of this Article. The competent authorities of the Contracting Parties shall notify each other of any substantial changes which have been made in their respective taxation laws within a reasonable period of time after such changes.
5. All the existing taxes along with other taxes imposed after the signing of this agreement, are hereinafter referred to as "Chinese tax" or "Hong Kong Special Administration Region tax" respectively.

Article 3 General Definitions
1. For the purposes of this Agreement, unless the context otherwise requires:
(1) The terms "a Contracting State" and "the other Contracting State" mean mainland of China or the Hong Kong Special Administration Region as the context requires;
(2) The term "tax" means Chinese tax or The Hong Kong Special Administration Region tax, as the context requires;
(3) The term "person" includes an individual, a company, a trust, a partnership and any other body of persons which is treated as an entity for tax purposes;
(4) The term "company" means any body corporate or any entity which is treated as a body corporate for tax purposes;
(5) The term "enterprise" applies to the carrying on of any business;
(6) The terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean, respectively, an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;
(7) The term "shipping, air and land transport " means any transport by a ship or aircraft or land vehicle operated by an enterprise of a Contracting State, except when the ship or aircraft or land vehicle is operated solely between places in the other Contracting State;
(8) The term "competent authority" means, in the case of China, the State Administration of Taxation or its authorized representative and, in the case of the Hong Kong Special Administration Region, the Commissioner of Inland Revenue or his authorized representative, or any person or body authorized to perform any functions at present exercisable by the Commissioner or similar functions;.
(9) The term "business" includes the performance of professional services and of other activities of an independent character.
2. In the Agreement, the terms "Chinese tax" and "Hong Kong Special Administration Region tax" do not include any penalty or interest imposed under the laws in force in either Contracting Party relating to the taxes to which the Agreement applies by virtue of Article 2.
3. In the application of the provisions of this Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State concerning the taxes to which this Agreement applies, any meaning under the applicable tax laws in force in that State shall prevail over a meaning given to the term under other laws in force in that State.

Article 4 Resident
1. For the purposes of this Agreement, the term "resident in a Contracting State", has the following meanings:
(1) In the mainland of China, the term "resident of a Contracting State" means any person who is liable to tax therein by reason of his domicile, residence, place of management or incorporation or any other criterion of a similar nature in accordance with the tax laws in force in the mainland of China. This term, however, does not include any person who is liable to tax liability in that State in respect only of income from sources in that State.
(2) In the Hong Kong Special Administration Region, the "resident of a Contracting State" means:
A. A person who is ordinarily resident in the Hong Kong Special Administration Region;
B. A person who stays in the Hong Kong Special Administration Region for over 180 days within any taxable year or who stays continuously for a period of over 300 days within any two consecutive years (one of the years being the taxable year);
C. Any legal entity incorporated in the Hong Kong Special Administration Region, or outside of the Hong Kong Special Administration region but with the administration and control activities in Hong Kong;
D. Other institutions incorporated under the laws of Hong Kong Special Administration Region, or outside of Hong Kong Special Administration region but with the administration and control activities in Hong Kong;
2. Where by reason of the provisions of paragraph 1 an individual is a resident in both Contracting States, then his status shall be determined as follows:
(1) He shall be deemed to be a resident only in the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only in the State with which his personal and economic relations are closer ("centre of vital interests");
(2) If the State in which he has his centre of vital interests cannot be determined, or he has not a permanent home available to him in either State, he shall be deemed to be a resident only in the State in which he has an habitual abode;
(3) If he has a habitual abode in both States or in neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1, a person other than an individual is a resident in both Contracting States, and then it shall be deemed to be a resident only in the State in which its place of effective management is situated.

Article 5 Permanent Establishment
1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
(1) A place of management;
(2) A branch;
(3) An office;
(4) A factory;
(5) A workshop; and
(6) A mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
3. The term "permanent establishment" likewise encompasses:
(1) A building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only where such site, project or activities continue for a period of more than six months;
(2) The furnishing of services, including consultancy services, by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, provided that such activities continue for the same project or a connected project for a period or periods aggregating more than six months within any twelve- month period.
4. Notwithstanding the provisions of paragraphs 1 to 3, the term "permanent establishment" shall be deemed not to include:
(1) The use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
(2) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;
(3) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(4) The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of advertising, or of collecting information, for the enterprise;
(5) The maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;
(6) The maintenance of a fixed place of business solely for any combination of the activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
5.
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