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Hong Kong Still Sees Problems On Mainland Services

by Mary Swire,, Hong Kong

11 May 2012

Secretary for Commerce and Economic Development, Gregory So, has replied to a question in the Legislative Council regarding the tax and procedural difficulties being experienced by the Hong Kong services sector in developing business in Mainland China.

It was said that, although the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) has lowered the threshold for Hong Kong's service industries to enter the Mainland market, such businesses still face problems relating to heavy taxation and the non-recognition of qualifications, as well as cumbersome vetting and approval procedures for starting up businesses.

The government was, therefore, asked about its plans to assist Hong Kong firms in resolving those difficulties, and, in particular, whether it would reconsider introducing special tax provisions to alleviate the tax burden on cross-border workers, and whether it would also introduce more mutual recognition of qualifications between the two places in the future.

So replied by reiterating that, as Hong Kong's taxation system is based on the territorial principle, Hong Kong residents' income derived from the Mainland is not subject to tax in Hong Kong, and that a proposal to introduce special tax provisions on the Mainland for frontier workers would probably lead to a double non-taxation of their income.

Hence, both the Hong Kong government and China’s State Administration of Taxation consider that it is not appropriate to introduce any special tax provisions for cross-border workers at this stage.

In addition, he added that there are fundamental differences between the tax system of Hong Kong and that of the Mainland. It is apparent that Hong Kong residents who conduct business or work in the Mainland should take into consideration such relevant factors as possible tax liabilities before making their commercial or personal decisions.

With regard to the mutual recognition of professional qualifications, So confirmed that Hong Kong and the Mainland actively promote exchanges among professionals of the two places under the CEPA. This includes allowing Hong Kong professionals to take Mainland qualification examinations to obtain relevant professional qualifications in the Mainland.

He pointed out that, at present, people from over 40 Hong Kong professional or technical disciplines can sit for professional qualification examinations in the Mainland. At the same time, Hong Kong and the Mainland have, through the CEPA, reached mutual recognition agreements or made arrangements for exemption of certain examination papers for various professional qualifications in the construction, securities and futures, accounting and real estate sectors.

However, it was confirmed that, in response to the needs of the trade, the Hong Kong government will continue to liberalize trade in services and pursue mutual recognition of professional qualifications through the CEPA.

TAGS: individuals | compliance | tax | business | tax compliance | legal services | law | accounting | financial services | employees | China | agreements | professionals | Hong Kong | construction | individual income tax | services

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