Revised Approach to Issuance of Certificate of Resident Status in Hong Kong

The Hong Kong Inland Revenue Department (IRD) has recently adjusted its approach with the issuance of Certificate of Resident Status (CoR) with effect from 12 June this year. Under such an adjusted approach, the IRD will now base its decision of whether to issue a CoR on the plain definition of Hong Kong resident under the relevant double taxation agreement (DTA). It appears that the IRD will no longer consider whether the applicant is entitled to the relevant tax benefits when considering whether to issue a CoR. Generally speaking (subject to the definition of Hong Kong resident under the relevant DTA), a company incorporated in Hong Kong should now be able to obtain a CoR without having to provide information to support its business substance in Hong Kong, as under most of the DTAs entered into by Hong Kong, a Hong Kong resident is defined to include a company incorporated in Hong Kong. An exception is however the Japan-Hong Kong DTA, under which a Hong Kong resident is defined as a company that has a primary place of management and control in Hong Kong.

The application forms for CoR have also been amended to align with such adjusted approach. For instance, a company incorporated in Hong Kong is no longer required to provide details of its establishment and business substance (a company incorporated or established outside Hong Kong will however still need to provide such information). And for an application of CoR for claiming tax benefits on dividends under the Mainland China-Hong Kong DTA, the applicant will need to state whether the claim falls within the provisions of Article 3 or 4 of Circular of the State Taxation Administration on Matters Concerning “Beneficial Owners” in Tax Treaties (STA Circular 2018 No. 9), and if so, provide further details about the multi-level holding structure, including the name and address of the person who holds directly or indirectly 100% of the equity interest in the immediate recipient of dividends.

Such change is a welcomed move, but taxpayers should bear in mind that obtaining a CoR will not guarantee success of obtaining the relevant tax benefits, which is ultimately a decision to be made by the relevant treaty partner and subject to anti-abuse rules under the relevant DTAs. While the CoR application procedure itself has been simplified, claiming tax treaty benefits do involve intricate tax rules. Taxpayers are therefore advised to consult their tax advisors to review their current cross-border payments and tax treaty benefit claims.