To introduce a new system for claiming benefits by non-resident taxpayers under China's double tax treaties, the PRC State Administration of Taxation issued Announcement [2015] 60 (Announcement 60) on 27 August 2015 with an effective date of 1 November 2015. Announcement 60 supersedes the existing system under Guoshuifa [2009] No. 124 which relies on “pre-approvals” by the PRC tax authority to claim reduced tax or tax exemption under tax treaties.

Under Announcement 60, pre-approval or record-filing acknowledgement by PRC tax authority is no longer required before non-resident taxpayers could enjoy the tax treaty benefits (e.g. claiming reduced withholding tax rates for dividends/ interest/ royalties/ capital gains; seeking permanent establishment protection or other treaty protections). Instead, non-resident taxpayers and withholding tax agents are only required to make self-assessment and file certain prescribed forms and supporting documents for purposes of making tax treaty benefit claims.

Tax filing obligations of non-resident taxpayers and withholding agents

For cases where payments from China are subject to withholding taxes and a withholding agent is administering the treaty benefit claim, the withholding agent shall assess whether the tax treaty benefit is applicable based on the forms and supporting documents supplied by the non-resident taxpayer (albeit the non-resident taxpayer remains responsible for the authenticity and accuracy of the information and documents submitted to the PRC tax authority).

The withholding agent may submit the following documents to the PRC tax authority:

   1. Resident Status Form
   2. Form re the entitlement of tax treaty benefits
   3. Tax Resident Certificate issued by the tax authority of the tax treaty partner jurisdiction
   4. Other relevant documents (e.g. contracts, directors' resolutions, shareholders' resolutions, etc.)

For cases where no withholding agent is involved (e.g. seeking permanent establishment protection) or a non-resident taxpayer is seeking refund of withholding tax, the non-resident taxpayer shall assess their eligibility on tax treaty benefits.

The non-resident taxpayer may directly submit the abovementioned documents to the PRC tax authority.

Impacts of the new procedures for claiming tax treaty benefits

In time, the new streamlined procedures will be advantageous for promoting cross-border business and investment activities between China and Hong Kong.

Nevertheless, Hong Kong resident taxpayers should note that the changes will require themselves as well as withholding agents (if any) to possess sufficient knowledge of tax treaty when performing self-assessment. In addition, a significant amount of information will have to be submitted to the PRC tax authority to support the tax residency and entitlement of the non-resident taxpayers for the tax treaty benefits. Furthermore, tax treaty benefit claims may be scrutinized by PRC tax authority after tax filing submission. Where necessary, the PRC tax authority may invoke the General Anti-Avoidance Rules in the relevant tax law and regulations to investigate the claims, and the statute of limitation can be extended to ten years in such cases.