As Hong Kong continues to expand its network of income tax treaties, some taxpayers have been applying to the Inland Revenue Department (IRD) for Hong Kong tax residency certificates in order to claim tax benefits available under income tax treaties. The position of the IRD with respect to tax residency certificates has changed over recent years and has become notably more stringent. The IRD's current practice is that tax residency certificates are measures intended to prevent treaty abuse and for Hong Kong to be regarded as a responsible treaty partner.
The IRD has clarified its view that “beneficial ownership” is a pre-requisite for granting the preferential tax treatment in the passive income articles of an income tax treaty. Accordingly, if a company is unable to meet all the criteria of the relevant article of the tax treaty, including the requirement to be the beneficial owner of the income, the IRD may refuse to issue a tax residency certificate.
Taxpayers need to understand the IRD’s current practices and requirements before submitting their applications for tax residency certificates, for a successful and efficient process.
Read a February 2017 report [PDF 176 KB] prepared by the KPMG member firm in Hong Kong
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