When China reformed its tax system by introducing new taxes for joint ventures and foreign enterprises in the early 1980s, Hong Kong continued its colonial tax system. The co-existence of two different tax regimes has given rise to double taxation problems for businesses carrying on trade between Hong Kong and China. Since Hong Kong is a springboard to the vast Chinese market, the double taxation issues are not only a domestic concern but also of interest from an international perspective. This study attempts to examine the double taxation problems from 1980 to 1998 and analyses the practical effectiveness of the 1998 double taxation arrangement. In formulating the arrangement, lawmakers had flexibility in mind. Arguably, in achieving flexibility, they left some of the important issues that had existed during the 1980-1998 period unresolved, such as tax treatments for processing plants, withholding taxes on interest, dividends and royalty, and gains made by financial institutions from investment in Chinese stock markets through independent Qualifying Financial Institution Investors in the mainland.
Introduction
An Overview of China’s Taxation System
An Overview of Hong Kong’s Taxation System
Double Taxation Problems: 1980-1998
The Double Taxation Arrangement
Double Taxation Problems After 1998
Conclusion
References