Hong Kong Tax News Flash

June 2023, Issue 10

IRD’s adjusted approach to the issuance of Certificate of Resident Status: Only residence matters

The Inland Revenue Department (IRD) has recently revisited its approach to the issuance of Hong Kong Certificate of Resident Status (HK CoR) and announced that effective from 12 June 2023, it will base its decision of whether an HK CoR can be issued on the plain definition of ‘resident of Hong Kong’ in the relevant comprehensive avoidance of double taxation agreement/arrangement (CDTA). The application forms have also been revised to reflect its latest approach.

As an entity incorporated or constituted under the laws of Hong Kong would by definition qualify as a Hong Kong tax resident in most CDTAs signed by Hong Kong, such an entity is now only required to provide basic information about its business particulars in the revised application forms.

An exception to the above is in respect of applications in relation to tax benefits claim under the CDTA between Hong Kong and Japan, which defines ‘resident of Hong Kong’ as an entity having a primary place of management and control in Hong Kong. As such, an applicant that is a Hong Kong incorporated/constituted entity is still required to provide detailed information about its establishment and business substance in and outside Hong Kong.

Where an application for an HK CoR is in relation to tax benefits claim on dividends that falls within the relevant provisions of the Circular of the State Taxation Administration on Matters Concerning ‘Beneficial Owners’ in Tax Treaties (STA Circular 2018 No. 9) (PN 9), the applicant is also required to provide particulars of the lead applicant in the multi-level holding structure and other relevant information.

This news flash summarises the salient features of the revised application forms applicable to non-individuals and our observations on the implications of the IRD’s adjusted approach for tax benefit claimants under Hong Kong’s CDTAs.

Taxpayers should also bear in mind that being able to obtain an HK CoR is only the first step in claiming tax benefits under a CDTA. A Hong Kong tax resident without economic substance in Hong Kong or failing to meet the other conditions in the CDTA could still be denied treaty benefits by the treaty partner.