The income tax arrangement between China and Hong Kong incorporates provisions for teachers and researchers.
The measures are contained in Protocol V of the “Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income” (signed in Beijing on 19 July 2019).
China’s State Taxation Administration on 31 December 2019 issued guidance (Announcement 51, known in English as the “Announcement on the Enforcement of Protocol V.”) For China, the relevant provisions under Protocol V will apply for income earned in the tax years beginning on or after 1 January 2020.
In order to promote exchanges of education and scientific research between China and Hong Kong and the development of the “Greater Bay Area,” Protocol V incorporates provisions for teachers and researchers so that eligible individuals will be entitled to a tax exemption for up to three years.
The provisions set out under Protocol V reflect a determination to promote educational and scientific exchanges between the mainland and Hong Kong, and to vigorously develop the science and culture of the Greater Bay Area of Guangdong, Hong Kong, and Macao.
It is worth noting that China has income tax agreements or treaties with over 100 countries and regions, among which these treaties with more than 80 countries and regions include provisions for teachers and researchers; however, the relevant tax exemption conditions and periods vary. For example, the United States-China income tax treaty grants eligible individuals a cumulative tax-exemption period of up to three years. The tax-exemption period will be suspended if the eligible individual leaves China before the end of the three-year period, and the period will resume if the eligible individual returns to China for teaching or research activities. On the other hand, the Germany-China income tax treaty grants the eligible individual a tax-exempt period of two years on income earned outside China in respect of teaching or research activities, and it further provides that when the individual stays in China for more than two years, the relevant income will be taxed from the date of arrival in China.
Therefore, under the arrangement with Hong Kong, employers and academic staff intending to enjoy the tax-exempt treatment need to consider whether they would meet the eligibility criteria, including but not limited to:
The State Tax Administration in October 2019 also issued Announcement 31 (known in English as the “Treatment of Non-Resident Taxpayers Benefiting from Double Taxation Agreements”). Announcement 35 stated that the relevant documentation related to income tax agreement applications would be retained by the taxpayers (instead of being submission to the tax authorities). Announcement 35 simplified the reporting requirements for taxpayers or withholding agents.
Discussions between KPMG tax professionals and various local tax authorities indicate that the tax authorities in some regions still have certain information reporting requirements to provide guidance to local taxpayers in respect of the understanding and application of arrangement. Therefore, withholding agents and individuals who wish to apply the tax-exemption treatments need to clarify the documentation and reporting requirements with the local tax authorities.
For more information, contact a KPMG tax professional:
David Ling | +1 609 874 4381 | email@example.com
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.