ARRANGEMENT BETWEEN THE MAINLAND OF CHINA AND THE HONG KONG
SPECIAL ADMINISTRATIVE REGION FOR THE AVOIDANCE OF DOUBLE TAXATION ON INCOME

Article 1Permanent Establishment and its Business Profits
1. The profits of an enterprise of One Side shall be taxable only on that Side unless the enterprise carries on business on the Other Side through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed on the Other Side but only so much of them as is attributable to that permanent establishment.
2. The term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
3. The term “ permanent establishment ”includes in particular:
(1) a place of management;
(2) a branch;
(3) an office;
(4) a factory;
(5) a workshop;
(6) a mine . an oil or gas well .a quarry or any other place of extraction of natural resources.
4. The term “permanent establishment” also includes:
(1) a building site . a construction , assembly or installation project or supervisory activities in connection
therewith , but only where such site, project or activities continue for a period of more than 6 months;
(2) services, including consultancy services , furnished by an enterprise of One Side , through employees or other personnel on the Other Side ,provided that such services have been furnished for the same project or a connected project for a period or periods exceeding in the aggregate 6 months in any 12-month period.
5. Notwithstanding the provisions of paragraphs 2 to 4 of this Article, the term “ permanent establishment” shall be regarded as not including:
(1) the use of facilities solely for the purpose of storage , display of delivery of goods or merchandise belonging to the enterprise;
(2) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage  display or delivery;
(3) the maintenance of a stock of goods or merchandise
belonging to the enterprise solely for the purpose of
processing by another enterprise;
(4) the maintenance of a fixed place of business solely for
the purpose of purchasing goods or merchandise , or of
advertising .or of collecting information , for the
enterprise;
(5) the maintenance of a fixed place of business solely for
the purpose of carrying on for the cnterprise.any other
activity of a preparatory or auxiliary character;
(6) the maintenance of a fixed place of business solely for
any combination of the activities mentioned in sub-paragraphs
(1) to (5) of this paragraph, provided that the overall
activity of the fixed place of business resulting from this
combination is of a preparatory or auxiliary character.
6. Notwithstanding the provisions of paragraphs 2 and 3 of
this Article, where a person, other than an agent of an
independent status to whom the provisions of paragraph 7 of
this Article apply , is acting on One Side on behalf of an
enterprise of the Other Side and has ,and habitually exercises
. an authority to conclude contracts in the name of the
enterprise .that enterprise shall be regarded as having a
permanent establishment on the first –mentioned Side in
respect of any activities which that person undertakes for the
enterprise, unless his activities are limited to those
mentioned in paragraph 5 of this Article which, if exercised
through a fixed place of business would not make this fixed
place of business a permanent establishment under the
provisions of that paragraph.
7. An enterprise of one side shall not be regarded as having a
permanent establishment on the Other Side merely because it
carries on business on that Other Side through a broker,
general commission agent or any other agent of an independent
status, provided that such persons are acting in the ordinary
course of their business.However, when the activities of such
an agent are devoted wholly or almost wholly on behalf of that
enterprise, he will not be regarded as an independent status
within the meaning of this paragraph.
8. The fact that a company which is a resident of One Side
controls or is controlled by a company which is a resident of
the Other Side or which carries on business on that Other Side
(Whether through a permanent establishment or otherwise ) ,
shall not of itself constitute either company a permanent
establishment of the other.
Article 2
Shipping, Air and Land Transport
1. Revenus and profits from the operation of ships, aircraft
or land transport vehicles carried on by an enterprise of One
Side on the Other Side shall be exempt from tax (which, in the
case of the Mainland of China. includes Business Tax) on the
Other Side.
2. The provisions of paragraph 1 of this Article shall also
apply to revenue and profits derived from the participation in
a pool, a joint business or an international operating agency.

Article 3
Personal Services
1. Independent personal services
(1) Income derived by a resident of One Side in respect of
professional services or other activities of an -234-
independent character shall be taxable only on that Side
except in any one of the following circumstances. where such
income may also be taxed on the Other Side.
(i) if he has a fixed base regularly available to him on the
Other Side for the purpose of performing his activities; in
such case, only so much of the income as is attributable to
that fixed base many be taxed on that Other Side;
(ii) if he stays on the Other Side for a period or periods
exceeding in the aggregate 183 days in the calender year
concerned; in such case, only so much of the income as is
derived from his activities performed on that Other Side may
be taxed on that Other Side.
(2) The term “ professional services” , in particular includes
independent scientific, literary, artistic, educational or
teaching activities as well as the independent activities of
physicians . lawyers, engineers architects, dentists and
accountants.
2. Dependent personal services
(1) Subject to the provisions of paragraph 3 of this Article,
salaries, wages and other similar remuneration derived by a
resident of One Side in respect of an employment shall be
taxable only on that Side unless the employment is exercised
on the Other Side ,If the employment is so exercised, such
remuneration as is derived therefrom may be taxed on the Other
Side.
(2) Notwithstanding the provisions of sub-paragraph (1) of
this paragraph , remuneration derived by a resident of One
Side in respect of an employment exercised on the Other Side
shall be taxable only on the first –mentioned Side if:
(i) the recipient stays on that Other Side for a period or
periods not exceeding in the aggregate 183 days in the
calendar year concerned ; and
(ii) the remuneration is paid by, or on behalf of , an
employer who is not a resident of that Other Side ; and
(iii) the remuneration is not borne by a permanent
establishment or a fixed base which the employer has on that
Other Side.
(3)Notwithstanding the provisions of sub-paragraphs (1) and
(2) of this paragraph,remuneration derived in respect of an
employment exercised aboard a ship,an aircraft or a land
transport vehicle operated in international traffic by an
enterprise of One Side shall be taxable only on the Side in
which the enterprise is situated.
3. Directors' fees
Notwithstanding the provisions of paragraphs 1and 2 of this
Article, directors' fees and other similar payments derived by
a resident of One Side in his capacity as a member of the
board of directors of a company which is a resident of the
Other Side may be taxed on that Other Side.
4. Artistes and athletes
Notwithstanding the provisions of paragraphs 1 and 2 of this
Article:
(1) income derived by a resident of One Side as an entertainer
, such as a theatre, motion picture, radio or television
artiste, or a musician , or as an athlete, from his personal
activities as such exercised on the Other Side may be taxed on
that Other Side.
(2) where income in respect of personal activities exercised
by an entertainer or an athlete in his capacity as such
accrues not to the entertainer or athlete himself but to
another person , that income may be taxed on the Side on which
the activities of the entertainer or athlete are exercised.
Article 4
Methods of Elimination of Double Taxation
1. In the Mainland of China, double taxation shall be
eliminated as follows:
Where a resident of the Mainland of China derives income from
the Hong Kong Special Administrative Region.the amount of tax
paid in the Hong Kong Special Administrative Region in respect
of that income in accordance with the provisions of this
Arrangement shall be allowed as a credit against the Mainland
tax imposed on that resident. The amount of credit, however,
shall not exceed the amount of the Mainland tax computed in
respect of that income in accordance with the taxation laws
and regulations of the Mainland of China.
2. In the Hong Kong Special Administrative Region. double
taxation shall be eliminated as follows:
Subject to the provisions of the taxation laws and regulations
of the Hong Kong Special Administrative Region regarding the
allowance of deduction or credit against the Hong Kong special
Administrative Region tax of tax paid in any place other than
the Hong Kong Special Administrative Region.where a resident
of the Hong Kong Special Administrative Region derives income
from the Mainland of China, the amount of tax paid in the
Mainland of China in respect of that income in accordance with
the provisions of this Arrangement shall be allowed as a
credit against the Hong Kong Special Administrative Region tax
imposed on that resident. The amount of credit, however, shall
not exceed the amount of the Hong Kong Special Administrative
Region tax computed in respect of that income in accordance
with the taxation laws and regulations of the Hong Kong
Special Administrative Region.
Article 5
Consultation
The competent authorities of the two Sides shall endeavour to
resolve by consultation any difficulties or doubts arising as
to the interpretation or application of this Arrangement.They
may also consult together for the elimination of double
taxation in cases not provided for in this Arrangement.In
order to facilitate reaching consensus,representatives of the
competent authorities of the two Sides may proceed with
consultation by an oral exchange of opinions.
Article 6
Personal Scope and Taxes Covered
1. Personal scope
(1) This Arrangement shall apply to a person who is a resident
of One Side or a resident of both Sides. The term “resident”
means any person who is liable to tax of One Side by reason of
his residence, domicile, place of effective management, place
of head office or any other criterion of a similar nature in
accordance with the laws of the respective Sides.
(2) Where by reason of the provisions of sub-paragraph (1) of
this paragraph an individual is a resident of both a Sides.
his status shall be determined as follows:
(i) he shall be regarded as a resident of the Side on which he
has a permanent home available to him; if he has a permanent
home available to him on both Side.he shall be regarded as a
resident of the Side with which his personal and economic
relations are closer ( “ center of vital interests”)
(ii) if the Side on which he has his center of vital interests
cannot be determined.or if he has not a permanent home
available to him on either Side , he shall be regarded as a
resident of the Side on which he has an habitual abode;
(iii) if he has an habitual abode on both Sides or on neither
of them , the competent authorities of the two Sides shall
settle the question by consultation.
(3) Where by reason of the provisions of sub-paragraph (1) of
this paragraph a person other than an individual is a resident
of both Sides,the competent authorities of the two Sides shall
determine itsresidential status by consultation.
2. Taxes covered
Subject to any other provisions,the existing taxes to which
this Arrangement shall apply are:
(1) In the Mainland of China:
(i) Individual Income Tax;
(ii) Foreign Investment Enterprises Income Tax And Foreign
Enterprises Income Tax (herein referred to as “Mainland tax”);

(2) In the Hong Kong Special Administrative Region;
(i) Profits Tax
(ii) Salaries Tax
(iii) Tax charged under Personal Assessment
( herein referred to as “ Hong Kong Special Administrative
Region tax”).
(3.) This Arrangement shall also apply to any identical or
substantially similar taxes which are imposed after the date
when this Arrangement comes into effect in addition to. or in
place of,the existing taxes referred to above. The competent
authorities of the two Sides shall notify each other of any
substantial changes which have been made in their respective taxation laws within a reasonable period of time after such changes.

Article 7General Definitions
1. For the purposes of this Arrangement, unless the context otherwise requires;
(1) the terms “One Side “ and “the Other Side” mean the Mainland of China or the Hong Kong Special Administrative Region as the context requires;
(2) the term “ person” includes an individual. a company and any other body of persons;
(3) the term “ company “ means any body corporate or any entity which is treated as a body corporate for tax purposes;
(4) the terms “enterprise of One Side “ and “ enterprise of the Other Side” respectively mean an enterprise carried on by a resident of One Side and an enterprise carried on by a resident of the Other Side;
(5) the term “shipping , air and land transport” means any transport by ships, aircraft or land transport vehicles
operated by an enterprise of One Side, except when the ships, aircraft or land transport vehicles are operated solely between places on the Other Side;
(6) the term “ Competent authority “ means, in the case of the Mainland of China the State Administration of Taxation or its authorized representatives and , in the case of the Hong Kong Special Administrative Region. the Commissioner of Inland Revenue of the Hong Kong Special Administrative Region Government or his authorized representatives.
2. As regards the application of this Arrangement by One Side, any term defined herein shall , unless the context otherwise requires, have the meaning which it has under the laws of that Side concerning the taxes to which this Arrangement applies.

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