On 30 th January 2008, the Central Government of the People’s Republic of China (Mainland) and the Government of Hong Kong Special Administrative Region (HK) signed the Second Protocol on the Arrangement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income (Second Protocol). This was a follow-up on the First Protocol of the same arrangement (First Protocol) signed on 21 st August 2006. The First Protocol came into effect on 1 st January 2007 in Mainland.

Upon the implementation of the First Protocol, both the Mainland and Hong Kong hold different views on the interpretation on some of the articles. After negotiation, both sides achieved agreements on all necessary amendments on the First Protocol. As a result, the Second Protocol was drafted on 11 th September 2007.

Meanwhile, the new Corporate Income Tax (CIT) Law came into effect on 1 st January 2008 in the Mainland. Thus relevant articles in the First Protocol had to be amended, especially in respect to tax classification and definition on "tax resident" status of companies.

Permanent Establishment

In determining whether HK companies, which provide services including consulting services in the Mainland, are liable to the new CIT, both sides have now agreed to replace the term "six months" with "183 days" as the basis of calculation.

Under old agreement, a HK company would be considered as having a permanent establishment in the Mainland and is liable to tax if they provide services for an aggregate of six months in a the 12-month period in the Mainland.

Shareholders of Companies owned Immovable Property

25% Shareholding Threshold for Capital Gains Exemption

常设机构

在判定一个香港企业在内地提供服务（包括咨询服务）是否要缴纳内地的企业所得税时，双方现在同意用“183天”代替“6个月”作为计算单位。

持有不动产的公司

财产转让收益豁免的追溯期