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These notes are issued for the information of taxpayers and their tax - page 59 / 68

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- The tax credit limit $20,000 x 17.5% (whichever is smaller) (Note 1) =

) $3,500 )

Tax payable after allowance of tax credit

(3,500)(Note 2) 0

(Note 1)

In accordance with section 50(5), tax paid in the Mainland which is not allowed as a tax credit, i.e. $3,394 ($6,300 – $2,906), can be allowed as a deduction as shown in the detailed computation below:

Mainland tax paid

$$ 6,300

Net income from the Mainland after tax (grossed up at effective Hong Kong tax rate)

100% $13,700 x 100% – 17.5%

16,606

Less: Net income from the Mainland after deduction of tax

$(20,000 – 6,300)

(13,700)

Less: Tax credit limit for tax paid in the Mainland Tax paid in the Mainland not allowed as a tax credit

(2,906) 3,394

Hong Kong tax payable before tax credit

2,906

$(20,000 – 3,394) x 17.5% Less: Tax credit limit for tax paid in the Mainland Hong Kong tax payable after allowance of tax credit

(2,906) 0

(Note 2)

The formula of the credit limit is based on sections 50(3) and 50(5) of the Ordinance. As the tax payable by Company D is computed at flat rate, the following simplified formula can be used to compute the credit limit:

Tax credit limit for tax paid in the Mainland

=

Taxable income from the Mainland

x

Tax payable in Hong Kong

Total assessable income

55

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