PRC Taxes on Hong Kong & Foreign Companies: Clarifications, Changes, Challenges & Opportunities
Hong Kong and foreign companies making frequent visits to mainland China are likely to be subject to PRC enterprise income tax, while foreign investors, lenders and technology licensors will face challenges in seeking the most preferential rates of PRC withholding tax.
Date:
May 2007
Keywords (click to search): [levy] [enterprise income tax] [double tax avoidance] [double taxation agreement] [corporate structure] [SAT] [Hong Kong companies] [foreign companies] [cross boarder]
By Neal Stender, Qingsong (Kevin) Wang and Peter Connors
Orrick, Herrington & Sutcliffe
In order to increase the predictability and reduce the amount of their PRC enterprise income tax liability, Hong Kong and foreign resident companies that previously provided services to clients through frequent visits to the PRC should now consider establishing a subsidiary there to provide these services. Holding such a China subsidiary through a Hong Kong subsidiary, and using a Hong Kong subsidiary to receive China-sourced loan interest and intellectual property royalties has become more attractive to companies based in the United States1 and other foreign countries, due to preferential tax rates under Hong Kong's recently revised and expanded tax arrangement with the PRC central government2 (the New Arrangement).
But a Hong Kong subsidiary may be denied PRC tax preferences if its role does not serve a reasonable commercial purpose (not including enjoyment of the preferences). Moreover, PRC tax policies...
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