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These notes are issued for the information of taxpayers and their tax - page 17 / 68

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controlled by a company which is a resident of the Other Side, or which carries on business in that Other Side, will not of itself constitute either company a permanent establishment of the other.

A building site, a construction, assembly or installation project

38.

The term “permanent establishment” also includes “a building site, a

construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than 6 months”. The Ordinance imposes tax on income derived from contracting work carried out in Hong Kong in accordance with the territoriality principle. The duration of the work is not a relevant factor. However, pursuant to the Comprehensive Arrangement, chargeability of profits in respect of contracting work carried out in Hong Kong by an enterprise of the Mainland will be governed by the duration of the work. An enterprise of the Mainland will be deemed to have a permanent establishment in Hong Kong only if the contracting work carried out in Hong Kong lasts more than six months. Profits attributed to that permanent establishment will be subject to tax in Hong Kong in accordance with the provisions of Article 7 (Business Profits) (see paragraphs 55 to 66 below). Profits in respect of contracting work of a shorter duration will not be subject to tax in Hong Kong. Similarly, an enterprise of Hong Kong will not be regarded as having a permanent establishment in the Mainland if contracting work carried out in the Mainland does not last more

than six months and accordingly will not be subject to tax there.

39.

The period for which a project is carried out is counted from the date

the contractor commences work (including any preparatory activities) up until the date on which the work is totally completed and handed over to the user. If the period covers two years, the period is counted on a continuous basis straddling over the years in question. In a case where two or more sub-projects are contracted for by a person at the same site or for the same project, the period is counted from the date of commencement of the first

sub-project to

the

other words,

the

date of completion of the last sub-project of that person. In respective sub-projects would not be counted separately.

“Two or more sub-projects contracted for at project” refers to sub-projects that would form

the same site or a coherent whole

for the same commercially

and geographically. are contracted for in

Where relation

sub-projects are situated to different projects, the

at different localities and respective periods would

13

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