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These notes are issued for the information of taxpayers and their tax - page 9 / 68

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Article 1

PERSONS COVERED

11.

The stated purpose of the Comprehensive Arrangement is for the

avoidance of double taxation in both Sides. The Comprehensive Arrangement only applies to persons who are residents of One Side or both Sides. The terms “resident of the Mainland” and “resident of Hong Kong” are defined in

paragraph 1 of Article 4.

Article 2

TAXES COVERED

12.

In contrast to the Limited Arrangement, the Comprehensive

Arrangement adds property tax as one of the taxes of Hong Kong under its coverage. More particularly, the existing taxes covered by the Comprehensive Arrangement are profits tax, salaries tax and property tax, whether or not the tax is charged under personal assessment, in Hong Kong; and individual income tax, foreign investment enterprises income tax and foreign enterprises income tax in the Mainland. According to Article 1 of the Second Protocol, in the Mainland the existing taxes covered by the Comprehensive Arrangement starting from 2008 are individual income tax and enterprise income tax. Other taxes do not come within the scope of the Comprehensive Arrangement (except that business tax is included in the Mainland for the purposes of Article

8 of the Comprehensive Arrangement, see paragraph 67 below).

13.

The Comprehensive Arrangement applies to all income that is

subject to the abovementioned taxes, including taxes on gains from the alienation of movable and immovable property and taxes on capital appreciation. As such, receipts of capital nature come within the scope of the Comprehensive Arrangement. However, it is left to the domestic law of each

Side to decide whether receipts of capital nature should be taxed.

14.

The Comprehensive Arrangement will also apply to any identical or

substantially similar taxes that are imposed after the date of signature of the Comprehensive Arrangement in addition to, or in place of, the existing taxes as well as any other taxes falling within Article 2 which may be imposed in future.

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