Mainland–Hong Kong tax arrangement: applying the reduced rates
A qualifying Hong Kong resident company may claim reduced Mainland withholding on dividends, interest and royalties. The Arrangement is not automatic: a certificate of resident status, beneficial-owner status and the holding-period tests must all be met.
Framework
The Mainland–Hong Kong Arrangement dates from 1998 and has been updated by protocols (the sixth was signed in November 2024; its entry into force is subject to official announcement). The Arrangement binds only residents of the two sides; non-residents cannot claim it. Hong Kong maintains comprehensive agreements or arrangements with more than 40 jurisdictions.
The usual rates
Dividends, interest and royalties are the three most-used items in Mainland-to-Hong Kong payments (see table). The Arrangement is not automatic — withholding is first applied at the 10% domestic rate, with the Arrangement rate obtained through filing or refund where the conditions are met.
The three tests
The reduced rate requires all of: (1) a Hong Kong certificate of resident status — applied for from the IRD (online or on form IR1313A), free of charge, typically issued within weeks for Mainland cases; (2) beneficial-owner status — examined by the Mainland under Guo Shui Han [2009] No. 601 and Announcement [2018] No. 9, with conduits and substance-less platforms denied; (3) the holding tests — the 5% dividend rate requires a direct holding of at least 25% for the required period. Missing one item, the full 10% applies.
Rate comparison for the common items
| Item | Arrangement rate | Domestic rate | Main conditions |
|---|---|---|---|
| Dividends | 5% | 10% | Beneficial owner with a direct holding of at least 25% |
| Dividends (other cases) | 10% | 10% | — |
| Interest | 7% | 10% | Certificate of resident status + beneficial owner |
| Royalties | 7% | 10% | Certificate of resident status + beneficial owner |
| Business profits | Not taxable | — | No permanent establishment in the Mainland |
Permanent establishment risk
A Hong Kong company seconding staff to the Mainland constitutes a PE there once the presence exceeds 183 days in aggregate in any 12-month period (Article 5 of the Arrangement), with the attributable profits taxed in the Mainland; a construction site or installation project lasting more than 6 months is also a PE. Business profits unconnected to a PE are not taxed in the Mainland.
Order of work
Establish residence and the substance behind beneficial ownership first (people, decisions and expenditure matching the income), then obtain the certificate and the holding evidence, and file with the competent Mainland authority. Where the chart and the real seat of decisions diverge, treaty treatment is the first thing to be challenged.
Rates, conditions and procedures follow the STA and IRD publications then in force.
Case-specific decisions differ — book a consultation with our advisers.
The content of this page is general professional information and does not constitute tax, legal or investment advice. For specific cases, please consult a Hong Kong practising accountant or tax adviser, or refer to official publications of the IRD / SFC / HKMA / CR.