Navigating a new tax landscape - KPMG China
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Navigating a new tax landscape

A lens on the Greater Bay Area

Significant opportunities

tax landscape

The diverse range of industries and strengths across the GBA's cities provides significant opportunities for companies that are looking to enter or build on their existing presence in China.

Navigating a new tax landscape

Enterprises participating in the GBA have to plan ahead and properly manage tax risks and utilise tax incentives to capitalise on opportunities presented by the greater movement of people and capital.

Key tax themes

Permanent establishment (PE) and tax residency risks

Since the GBA consists of three different tax jurisdictions, an enterprise could be liable to tax in multiple jurisdictions if its tax affairs are not properly planned. Enterprises need to carefully manage and establish appropriate operating protocols to ensure they do not create inadvertent PE or tax residency risks in the GBA. While related party transactions between different tax jurisdictions will be closely examined by the tax offices, there are planning opportunities for groups of enterprises to enhance their overall tax efficiency.

Movement of capital

Southern China’s strong manufacturing base, combined with Hong Kong’s connectivity to the rest of the world, presents significant investment and growth opportunities to businesses operating in the GBA. At present, where a Hong Kong enterprise enters into a duly approved “contract processing arrangement” with a Mainland Chinese enterprise, only 50% of the profit derived by that Hong Kong enterprise is subject to Hong Kong Profits Tax. Furthermore, special tax incentives are currently available in some GBA cities in Mainland China (e.g. favourable Corporate Income Tax rate of 15% for specific industries in Qianhai), while a super tax deduction is expected to be introduced in Hong Kong shortly to promote R&D activities. Enterprises should therefore carefully plan their investments in order to take advantage of these tax incentives.

Movement of people

Increasing R&D investment is critical to the transformation of the GBA into an innovation-driven economy. One way to augment R&D and develop a knowledge and research base is through crossborder collaboration between academics and research institutions. A current obstacle to Hong Kong academics and researchers working full-time in Mainland China is the higher income tax compared to Hong Kong. To facilitate crossborder collaboration, the Hong Kong SAR Government should consider adding a frontier workers mutual tax exemption clause – similar to what is commonly adopted in the European Union – into the existing Mainland China-Hong Kong double taxation agreement, to remove the tax obstacle to all professionals and workers moving freely within the GBA.

The KPMG tax proposition

Comprehensive tax support

Our tax team in the GBA comprises experienced Corporate Tax Advisory and Mergers and Acquisitions Tax teams that have participated in many high-profile cross-border transactions and restructuring deals. KPMG is well-positioned to support our clients that participate in the GBA with current in-depth tax advice throughout the deal cycle. This includes providing tax due diligence and structuring assistance, advising on appropriate operating/financing arrangements, as well as potential tax-efficient exit strategies and tax modelling assistance. In addition, KPMG offers a broad range of tax services to support our clients including, but not limited to, transfer pricing, trade and customs, tax dispute resolution and controversy, salaries tax and personal tax planning, and global compliance management services.

National tax network

KPMG has an extensive national network of tax professionals located in the GBA. We offer our clients in-depth technical and practical knowledge of tax rules across all sectors, including manufacturing, real estate, infrastructure, financial services, private equity and the services industry.

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