Articles

Tax Advisory Department

Tax Advisory Department

By Anna Chan and Victor Ng

831日,中国全国人大常委会审议并通过了新的个人所得税法(以下简称《新个人所得税法》)。除了相对瞩目的税收居民定义的修改外(详情请参阅我们的文章“China is Reforming its Individual Income Tax Rules – Are You Ready?”),以下两项修改也很值得关注,特别对高净值资产人士而言

 

1. 反避税规则被写入《新个人所得税法》

《新个人所得税法》将于201911日起施行。新税法中新增的第八条[1] 赋予税务机关广泛的权力,在认为有避税情况时进行纳税调整。所谓的「避税情况」亦甚为广泛,例如税务机关认為是不符合独立交易原则、且无正当理由之业务往来,又或者是纳税人所操控之机构设于低税制地区欠缺合理经营需要

 

2. 捐赠财产将被视同转让财产并需缴纳个人所得税

另外,《新个人所得税法》关联之《实施条例修订草案征求意见稿》[2] 建议引入從前未有之「馈赠税」,該意见稿第十六条明确列出「个人发生非货币性资产交换,以及将财产用于捐赠、偿债、赞助、投资等用途的,应当视同转让财产并缴纳个人所得税,但国务院财政、税务主管部门另有规定的除外。」

此外, 第六条第(八)项列出 「财产转让所得,是指个人转让有价证券、股权、合伙企业中的财产份额、不动产、土地使用权、机器设备、车船以及其他财产取得的所得。」

如果我们对第十六条进行一般性的解读,这条涵盖了所有以馈赠形式作出的转让(税率为20%),大辐增加了当局目前的税收范围。

 

3. 相关新修改对高净值资产人士的税务含义

相关的新税法实施后及《实施条例修订草案》获得通过后,将会对高净值资产人士目前常用的税务安排(即在海外特别设立公司持有资产仅为避税目的而无任何实质经营,及将资产以零对价放入家族信托),带来严重冲击及增加税务成本。

这是因为在新修改生效后:

  1. 税务机关可能对持有资产仅为避税目的而无任何实质经营的海外公司进行纳税调整;
  2. 在《实施条例修订草案》的第十六条实施后,当局可以视相关的馈赠为财产转让。根据《新个人所得税法》,财产转让的个人所得税率为百分之二十而相关税项将由捐赠者(即转让方)承担;及
  3. 當局有权认为高净值资产人士将资产零对价放入家族信托的行为不符合独立交易原则,因而进行纳税调整。

 

4. 即时行动

我行认为虽然现阶段《实施条例修订草案》还没得以实施和颁布,惟相关的条例可能会有追溯力(例如,跟《新个人所得税法》同时于201911日起生效)。再者,基于上文提到的《新个人所得税法》第八条带来各种在税收层面上的不确定性,我们建议有意设立信托管理资产的客户201911日(即《新个人所得税法》的施行日)前尽早成立信托,将相关税务风险减至最低。这解释了为什么在新修改生效之前,中国有这么多高净值资产人士设立信托。

另外,以信托形式管理资产仍可实现递延税项(Deferred Taxation)、资产保护(Asset Protection)及继承计划(Succession Planning)等好处和目的。因此,虽然在新修订生效后可能要为馈赠资产缴付税项,以信托形式管理资产依然是利多于弊

我们拥有丰富的税务知识和成立信托的经验,可协助加强您的税务筹划结构。请咨询我们的团队以获得进一步的协助。

声明:

以上内容不构成高李严律师行出具的任何正式法律意见。如您希望进一步就相关问题进行法律咨询或寻求专业法律分析及意见 ,请与本行律师联系。

 

[1]第八条有下列情形之一的,税务机关有权按照合理方法进行纳税调整:

(一)个人与其关联方之间的业务往来不符合独立交易原则而减少本人或者其关联方应纳税额,且无正当理由

(二)居民个人控制的,或者居民个人和居民企业共同控制的设立在实际税负明显偏低的国家(地区)的企业,无合理经营需要,对应当归属于居民个人的利润不作分配或者减少分配;

(三)个人实施其他不具有合理商业目的的安排而获取不当税收利益。

税务机关依照前款规定作出纳税调整,需要补征税款的,应当补征税款,并依法加收利息。

[2]国家税务总局在20181020日公布了《中华人民共和国个人所得税法实施条例(修订草案征求意见稿)》(简称“实施条例修订草案),该“实施条例修订草案旨在向社会公开征求意见,并未获通过立法。

 

By Anna Chan

With Hong Kong being a signatory to the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (“MCAA on AEOI”) and the Convention on Mutual Administrative Assistance in Tax Matters (“Convention”) entering into force in Hong Kong, Hong Kong has started exchanging financial account information with 41 jurisdictions commencing from 1 September 2018, including United Kingdom, France, Germany, Australia, Canada, Singapore and Japan.

This means the information of account holders who are subject to taxation as a resident in other jurisdictions other than Hong Kong including interest income, dividend income, gross proceeds from the sale of financial assets would be provided to the tax authorities of the other jurisdictions under the Automatic Exchange of Financial Account Information (“AEOI”) regime. Please refer to our Article “Is your personal data at stake because of the increased transparency in tax administration through Automatic Exchange of Information?” for a detailed discussion of the AEOI regime.

How it works?

(1) The Hong Kong Inland Revenue Department (“IRD”) has established a dedicated platform, i.e., the AEOI Portal, for reporting financial institutions (“FIs”) to electronically submit notifications and furnish Financial Account Information Returns for reporting the required information of reportable accounts.

(2) The IRD will exchange the financial account information collected from the reporting FIs with relevant jurisdictions via the Common Transmission System established by the OECD.

OLN’s observation

In the past Hong Kong had relied on a bilateral approach which involves signing bilateral Competent Authority Agreements (“CAA”) for AEOI with other jurisdictions that already have a comprehensive avoidance of double taxation (“CDTA”) or a tax information exchange agreement (“TIEA”) with Hong Kong. As at 13 September 2018, Hong Kong had 40 CDTAs and 7 TIEA, and signed 16 bilateral CAAs for AEOI. Hong Kong’s move of being a signatories to MCAA on AEOI and having the Convention entering into force in Hong Kong has demonstrated Hong Kong’s commitment to enlarging the scope of the exchange of tax information in the international community and to comply with the OECD’s requirement to have the first exchange of AEOI with a wide network of partners by September 2018.

With the continuous trend of the exchange of tax information between the tax authorities, taxpayers, in particular for the taxpayers that have presence in various jurisdictions, should carefully assess their tax obligations to ensure compliant with the tax laws of the relevant jurisdictions.

OLN is equipped to advise clients on tax issues arising from various jurisdictions. If you have any questions regarding the above or on any tax issues, please contact one of the members of the tax advisory team.

by Anna Chan

The State Administration of Taxation of China (“SAT”) recently released Public Notice [2018] No. 9 (“Public Notice 9”) which provides additional guidance in assessing the beneficial ownership for treaty purposes to be aligned with the international standards.

Impact of Public Notice 9

Public Notice 9 replaces Guoshuihan [2009] No. 601 (“Circular 601”) and Public Notice [2012] No. 30 (“Public Notice 30”) and has come into effect from 1 April 2018. The impact of Public Notice 9 are as follows:-

(i) Amendments to the unfavourable factors as listed in Circular 601

(ii) Extension to the Safe Harbour Rule for dividends as listed in Public Notice 30

Distribution of income: The recipient of the income is obligated to distribute more than 50% of such income (as opposed to 60% as stated in Circular 601) to a resident(s) of a third jurisdiction within 12 months after the receipt of such income.

In addition, the term “obligated” is now more broadly defined as “including having contractual obligation or actual payment even if no contractual obligation

the following recipients of China-sourced dividends will automatically recognized as beneficial owners without the need to undergo an assessment based on the unfavourable factors:-

(1) Government of the contracting state (an extension from Public Notice 30);

(2) Company that is a resident of the contracting state and listed in the contracting state;

(3) Individual who is a resident of the contracting state (an extension from Public Notice 30); and

(4) Recipient that is directly or indirectly wholly owned by one or more parties listed above. In cases of indirect ownership, the intermediary shareholders must be either Chinese residents or residents of the contracting states (unless it falls into either the “same country rule” or “same treaty benefit rule” as detailed below).

Substantive business activities: Public Notice 9 now broadly states that it would be an unfavourable factor if the business activities conducted by the recipient of the income do not constitute substantive business activities, which is determined based on the functions performed and the risks assumed by the recipient

No tax in residence jurisdiction: Same as Circular 601, the income is not subject to tax or it would be taxed at a very low effective tax rate in the residence jurisdiction of the recipient

Existing of another loan agreement: Same as Circular 601, in addition to the relevant loan agreement of which interest is derived, the creditor has another loan agreement or deposit agreement with a third party with similar terms such as the loan amount, interest rate and date of execution

Existing of another agreement regarding ownership or right to use: Same as Circular 601, in addition to the relevant agreement in relation to copyright, patents or technology etc. of which royalty is derived, the recipient of the royalty has another agreement with a third party regarding the ownership or right to use the relevant copyright, patents or technology etc. (this factor remains the same as the one listed in Circular 601)

 

Our observations and application

The extension of the safe harbour rule provides more certainty to dividend recipients without the need to undergo the assessment based on the unfavourable factors as SAT considers that there should be less risk in treaty abuse.

For example, entities / individuals can now enjoy treaty benefits under the introduction of the “same country rule” or “same treaty benefit rule” as detailed below:-

(1) Same country rule

 Screen Shot 2018 08 15 at 09.19.38             

(2) Same treaty benefit rule

Screen Shot 2018 08 15 at 09.07.54            

However, the unfavourable factors now have more stringent requirements in place. For example:-

-        the percentage of the income to be distributed has now dropped from 60% to 50%;

-        the term “obligated” is explicitly defined in Public Notice 9 as “including having contractual obligation or actual payment even if no contractual obligation”; and

-        replacing the factor that “the recipient conducts no or very few other business activities” to “do not constitute substantive business activities”.

Entities / individuals with China-sourced passive income should carefully review their existing investment structures to ensure that they could enjoy or continue to enjoy the treaty benefits under Public Notice 9.

OLN provides a full range of tax advisory services. If you have any questions regarding the above or on any tax issues, please contact one of the members of the tax advisory team.

How would the new law on Significant Controllers Register concern you?

By Anna Chan and Victor Ng

 

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institution) (Amendment) Ordinance 2018 (the “AML (Amendment) Ordinance”) and the Companies (Amendment) Ordinance 2018 (the “Companies (Amendment) Ordinance”) has come into effect on 1 March 2018.

The SCR regime

The Companies (Amendment) Ordinance imposes a new obligation on HK companies to identify its beneficial ownership and members with significant control and to maintain a Significant Controller Register (“SCR”) which is to be kept together with the company kits and other registers such as the Registers of Members and Directors. If a company fails to comply with any of the requirements under the new SCR regime, the company and each of its responsible persons commit and offence and each will be liable to a fine of HK$25,000 and a further daily fine HK$700 whenever applicable. Please refer to our firm’s article on “The Companies (Amendment) Ordinance 2018” for more details.

There are a few salient points to note in relation to SCR:-

  • SCR requirement is not only applicable to limited companies but also to companies limited by shares, companies limited by guarantee or unlimited companies. Only companies listed on the Hong Kong Stock Exchange (but not listed overseas) are exempted.
  • SCR is not for public inspection. However, the SCR has to be ready for inspection by law enforcement agencies, including but not limited to the Hong Kong Police Force, the Customs and Excise Department and the Inland Revenue Department (the “IRD”).
  • It is not specified in the Companies (Amendment) Ordinance as to whether information contained in the SCR will be surrendered by the law enforcement agencies to tax authorities in other countries. It shall, however, be noted that as part of our tax reform initiatives, Hong Kong has entered into numerous Automatic Exchange of Information agreement (the “AEoI”) with other jurisdiction to exchange information with overseas tax authorities. More AEoIs with others are expected to come. Assuming the UK’s HM Revenue & Customs, which is already an AEoI partner of Hong Kong, requests the IRD to surrender information regarding the ultimate beneficiar(ies) or significant controller(s) of a HK company, IRD may theoretically forward the information gathered from the company’s SCR to the HMRC. To know more about AEoI, please refer to our related article “Is your personal data at stake because of the increased transparency in tax administration through Automatic Exchange of Information (“AEOI”)?
  • The new SCR regime also requests company to have at least one designated representative whose role is to provide assistance to the Companies Registry and the law enforcement agents on SCR related matters. The Companies Registry has made clear that there would be no personal liability associated with acting as a designated representative of an Applicable Company.

AML (Amendment) Ordinance

Apart from imposing the new requirement on Trust or Company Service Providers (the “TCSP”) to obtain a license from the Companies Registry for carrying on their business, the AML (Amendment) Ordinance also extends the obligations to conduct customer due diligence (“CDD”) and to do records-keeping to the legal professional, accounting professional, real estate agents and TCSP licensees.

Since 1 March 2018, enhanced CDD measures shall be implemented by the TCSPs to (1) identify and verify the identity of their customers and their beneficial owners; (2) obtain information on the purpose and the intended nature of the business relationship before establishing business relationship with their customers; and (3) identify and verify the identity of the person purporting to act on behalf of their customers.

Accordingly, companies shall be prepared for more KYC and due diligence from its company secretarial service providers in the future.

What can OLN do for you?

OLN can help by reviewing your companies’ structure and identifying the significant controllers of your companies to ensure compliance with the new SCR regime. Please feel free to contact our Anna Chan at anna.chan@oln-law.com or our Victor Ng at victor.ng@oln-law.com

Does the Hong Kong 2018/2019 Budget have any impact on you and your business?

By Anna Chan and Victor Ng

 

 

The Financial Secretary of Hong Kong (“FS”), Mr. Paul Chan Mo-po, announced his budget for 2018/19 yesterday, providing a blueprint for the long-term development of Hong Kong. As explained by FS, the main objectives to be achieved are (1) to diversify Hong Kong’s economy; (2) to invest for the future; and (3) to share with the people of Hong Kong at large the fruitful economic achievements of Hong Kong for the past few years.

Some of the key features are outlined below:-

 

  Key features OLN’s observations/ comments
Diversified Economy
Innovation and Technology
  • Set aside HK$20 billion for the first phase of the Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop.
  • Inject HK$10 billion into the Innovation and Technology Fund to support applied research and development.
  • Earmark HK$10 billion for the establishment of two research clusters on healthcare technologies and on artificial intelligence and robotics technologies.
  • Allocate HK$10 billion to upgrade facilities of the Science Park and enhance support for enterprises in the Park.
  • Allocate HK$200 million to Cyberport to enhance support for start-ups.

We welcome the government’s recognition for and the setting aside of funds for the development of innovation and technology, which shall be a driving force for the Hong Kong’s economy.

We believe that with properly formulated policies, the start-ups and enterprises in the industry will have more funding and incentive to undergo more research and development and make Hong Kong a more competitive region for healthcare technologies and on artificial intelligence and robotics technologies.

We hope to see more favourable tax treatments to be in place so that the intellectual property rights resulting from the research and development would stay in Hong Kong and further diversify the economy.

Please refer to our article “How to Catch the Candies for Start-ups in Innovation and Technology under the Budget 2018-2019” for a more detailed discussion.

Tourism

  • Allocate HK$226 million for the Hong Kong Tourism Board to implement the Development Blueprint for Hong Kong’s tourism industry to broaden markets and attract high value-added overnight visitors.

Whilst we appreciate the government and the industry’s effort in attracting more visitors to Hong Kong (especially those high value-added overnight visitors), we await to any concrete plans or measures to resolve some of the key issues facing hotel and tourism development in Hong Kong, for example, human capital, infrastructure, tourism attractions and activities.

Trading and Logistics Industry

  • Expand trade, investment and tax treaty networks to open up new markets.

We are happy to see the government’s continuous emphasis and effort on expanding Hong Kong’s tax treaty networks, as evidenced by the many DTAs or double tax agreements concerning aviation and shipping income over the past few years.

We expect to see Hong Kong to conclude and sign more DTAs with countries along the Belt and Road to provide a more favourable tax environment for Hong Kong enterprises doing business in those countries.

Business and Professional Services

  • Enhance the network of Economic and Trade Offices to .
  • Provide a total of HK$250 million to Hong Kong Trade Development Council to assist local enterprises in seizing opportunities arising from the Belt and Road Initiative and Bay Area, and to promote development of e-commerce.

We strongly believe that Hong Kong enterprises, especially those in the finance, accounting, legal, engineering, management and architecture sectors can substantially benefit from Belt and Road initiatives and opportunities.  

We hope to see more tax treaties and investments agreements to be concluded and signed by Hong Kong and those countries along the Belt and Road. Hong Kong enterprises can play a major role in those initiatives.  We also expect to see more companies to be set up by foreign investors in Hong Kong who wish to benefit from those initiatives.

Creative Industries

  • Inject HK$1 billion into the CreateSmart Initiative to support development of the creative industries.
Please refer to our observations/ comments above.
Caring and Sharing

Abolishing the MPF “offsetting” arrangement

  • The Government is striving to put forth as soon as possible a proposal to effect the abolition of the MPF “offsetting” Severance Payment or Long Service Payment against MPF Contributions arrangement and will set aside HK$15 billion in relation to its financial commitment.
Hong Kong employers shall keep an eye on the continuous development on this topic as it might potentially increase their labour costs and evaluate the impact sooner rather than later.
Reducing Tax Burdens on Individuals
  • Various tax measures to alleviate the tax burden on salary earners.

Please refer to our article “Are you getting your slice of the “generous” tax measures as outlined in the 2018/2019 Hong Kong Budget?for a detailed discussion of the various tax measures.

Environment

Tax Concessions for Eligible Energy Efficient Building Installations

The Government will enhance tax concessions for capital expenditure incurred by enterprises in procuring eligible energy efficient building installations and renewable energy devices by allowing tax deduction to be claimed in full in one year instead of the current time frame of five years.

We welcome the incentivized measure on “green operation” and urge the government to provide more incentives to encourage the Hong Kong business sector to have a “green operation”, including, for example, by providing extra tax deduction or allowances.

 

OLN has tax advisors who have dual qualification in both accounting and law. We are happy to assist on any matters as mentioned above.

Page 1 of 3