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May 2013, Issue 13

Easier access to tax treaty benefits for Hong Kong companies receiving dividends from China

On 12 April 2013, the State Administration of Taxation (SAT) issued Circular Shuizonghan [2013] No.165 (Circular 165) as a reply to local-level tax bureaus regarding their cases on the assessment of beneficial ownership (BO) in respect of dividends under the Mainland/Hong Kong Double Taxation Arrangement (Mainland/HK DTA). If the BO status of a Hong Kong company is accepted, the company would be eligible for a lower withholding tax rate of 5% on dividends it derives from the Chinese invested entity. Circular 165 further explains how to apply the unfavourable factor tests provided in Circular Guoshuihan [2009] No.601 (Circular 601), as well as relevant interpretations on Public Notice [2012] No.30 (Public Notice 30) in BO assessment. Generally, the principles and guidelines presented in Circular 165 are practical and reasonable. It would be helpful for Hong Kong companies in obtaining favourable determination on its BO status.

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Peter Ng
China and Hong Kong Tax Leader
Shanghai
Tel: +[86] (21) 2323 1828 Email
Charles Lee
China South Tax Leader
Shenzhen
Tel: +[86] (755) 8261 8899 Email