income stipulated in the Comprehensive Arrangement and in respect of which tax has been paid in the Mainland. Only tax paid in the Mainland can be allowed as a credit under the Comprehensive Arrangement against Hong Kong tax. In accordance with section 50(2), an applicant for a tax credit must be resident in Hong Kong during the year of assessment in which the income is earned. However, if income derived by a Hong Kong resident from the Mainland does not arise in Hong Kong, it will not be chargeable to tax in Hong Kong. The tax paid in the Mainland in respect of that item of income cannot be allowed as a credit because the question of double taxation does not arise. In the case of a Hong Kong manufacturer whose profits are apportioned on a 50:50 basis, only half of the profits will be taxed in Hong Kong. The other half is regarded as having been derived from the Mainland and is thus not chargeable to tax in Hong Kong. Under such circumstances, where tax has been paid in the Mainland in respect of half or less than half of the profits, such tax will not be allowed as a credit against the Hong Kong tax payable. If more than one half of the profits are regarded by the Mainland as profits derived therefrom according to the Comprehensive Arrangement, then the tax paid in the Mainland in respect of such profits, in excess of one half of the total
profits, will be allowed as a credit against the tax payable in Hong Kong.
According to the abovementioned tax credit method, the tax credit in
respect of tax paid in the Mainland allowable for set off in Hong Kong is computed in accordance with sections 50(3) and 50(5) of the Ordinance as
Total assessable income (Gross) Including income in respect of which tax has been paid in the Mainland in accordance with the Comprehensive Arrangement
Hong Kong $ 1,500
The Mainland $
Tax rate (Partnership business)