Laws of the People's Republic of China

Circular of the State Administration of Taxation on Printing and Distributing the Text of the Arrangements between the Mainland of China and the Hong Kong Special Administrative Region on Avoiding Double Taxation and Getting Prepared for the Implementation thereof

Guo Shui Han [2006] No. 884

The state taxation bureaus and local taxation bureaus of each province, autonomous region, municipality directly under the Central Government and city specifically designated in the state plan, and all the departments within the State Administration of Taxation,

The Arrangements between the Mainland of China and the Hong Kong Special Administrative Region concerning Avoiding Double Taxation on Income and Preventing Tax Dodging & Tax Evasion was officially signed in Hong Kong on August 21, 2006. The present arrangements shall not go into effect and be executed until both sides have completed their respective legal procedures as required. The text of the present arrangements is hereby printed and distributed to you, please get ready for the implementation.

Appendix: Arrangements between the Mainland of China and the Hong Kong Special Administrative Region concerning Avoiding Double Taxation on Income and Preventing Tax Dodging & Tax Evasion

State Administration of Taxation

September 27, 2006 Appendix: Arrangements between the Mainland of China and the Hong Kong Special Administrative Region concerning Avoiding Double Taxation on Income and Preventing Tax Dodging & Tax Evasion

In order to avoid double taxation on income and prevent tax dodging & tax evasion , the Mainland of China and the Hong Kong Special Administrative Region reach the following agreements:

Article 1

Persons Covered

The present arrangements is applicable to the persons who are residents of either or both sides.

Article 2

Taxes Covered

1.

The present Agreements are applicable to all the taxes imposed by either of the two sides or by the local authorities thereof, regardless of the manner in which they are levied.

2.

The taxes on all incomes or any income, including the taxes on the proceeds arising from the transfer of chattels or estates as well as the taxes on the capital increment, shall be regarded as taxes on incomes.

3.

The active tax categories to which the present Arrangements shall be applied are:

(1)

In the Mainland:

(a) The personal income tax;

(b) The foreign-invested enterprises and foreign enterprises income tax.

(2)

In Hong Kong

(a) Profits tax;

(b) Salaries tax;

(c) Property tax.

No matter whether or not the taxes are levied in light of personal income.

4.

The present arrangements shall also apply to the same or substantially similar taxes that are levied after the date of signing the present arrangements as an addition or replacement to the active tax categories and apply to any other tax which is to be levied in the future but falls within the scope which is referred to in paragraphs 1 or 2 of this Article. The competent authorities of both sides shall notify each other of any substantial alterations made in their respective tax laws in an appropriate time after such alterations are made.

5.

The existing taxes and the taxes which are to be levied after the signing of the Arrangements, hereafter shall be named as "Mainland taxes" or "Hong Kong taxes" respectively.

Article 3

General Definitions

1.

In the present Arrangements, except for otherwise explained in the context :

(1)

The terms "one side" and "the other side", depending on the context, refer to the Mainland of China and the Hong Kong Special Administrative Region;

(2)

The term "taxes" ,depending on the context, refers to the Mainland taxes or Hong Kong Special Administrative Region tax ;

(3)

The term "person" includes individuals, corporations, affiances, partnerships and other groups;

(4)

The term "company" refers to any body corporate or any entity which is regarded as a body corporate for tax purposes;

(5)

The term "enterprise" shall be applied to all forms of business activities;

(6)

The terms "enterprise of one side" and "enterprise of the other side" respectively refer to an enterprise carried on by a resident of one side and an enterprise carried on by a resident of the other side;

(7)

The term "ocean shipping, air parcel and land transport" refer to transportations operated by an enterprise of one side in ships, aircrafts or land transport vehicles, , excluding the transportations operated in ships, aircrafts or land transport vehicles only between places in the other side;

(8)

The term "competent authority" refers to the State Administration of Taxation or its authorized representatives in the Mainland of China, and refers to the Commissioner of Revenue of the Hong Kong Special Administrative Region or his authorized representatives or any person or institution which is authorized to execute the functions or similar functions that may be executed by the Commissioner of Revenue at the present time in the Hong Kong Special Administrative Region,;

(9)

The term "business operation" includes professional services and other independent activities.

2.

In the present Arrangements, the "Mainland taxes" or "Hong Kong Special Administrative region tax" do not include any fines or interest levied by either of the two sides under any tax law as mentioned in Article 2 .

3.

With regard to the implementation of the present arrangements by one side, any term which has not been defined herein shall, except for otherwise explained in the context, have the meaning which it has under the laws of that side on the taxes to which the present arrangements applies. The definition of a relevant term in taxation laws shall be preferential to the definition of the same term in other laws.

Article 4

Residents

1.

In the present arrangements, the term "resident of one side" shall have the following definitions:

(1)

In the Mainland, it refers to any person who, in accordance with Mainland law, due to his domicile, residence, headquarters location, or place of actual management institution or other similar standards, have obligations to pay taxes in the mainland. However, this term does not include the persons who are obligatory to pay tax in the Mainland only due to the income rooting in the Mainland.

(2)

In the Hong Kong Special Administrative Region, it refers to

(a)Persons who ordinarily reside in the Hong Kong Special Administrative Region;

(b)Persons who stay in the Hong Kong Special Administrative Region for over 180 days within a taxable year or stay for over 300 days within two consecutive taxable years (one of which is a taxable year concerned);

(c)For the incorporation of companies established in the Hong Kong Special Administrative Region or established outside the Hong Kong Special Administrative Region but usually managed or controlled therein;

(d)Other persons which are formed according to the law of the Hong Kong Special Administrative Region, or other persons which are formed outside the Hong Kong Special Administrative Region but which are managed or controlled therein.

2.

Due to the provisions of Paragraph 1, as for an individual who is a resident of both sides, his identity shall be confirmed according to the following rules:

(1)

He shall be considered as a resident of the side in which he has a permanent domicile available to him; if he has a permanent domicile available to him in each of two sides, he shall be considered as a resident of the side which has a more closely personal and economic relations with him(the side where his important interest center is located) ;

(2)

If the side where his important interest center locates cannot be determined, or if he does not have a permanent home available to him in either side, he shall be considered as a resident of the side in which he has a customary abode;

(3)

If he has a customary abode in either side or in neither of them, the competent authorities of both sides shall settle the issue through negotiations.

3.

Due to the provisions of Paragraph 1 of this Article, a person, except an individual, who is a resident of both sides, shall be considered as a resident of the side where its actual management institution is located.

Article 5

Permanent Institutions

1.

In the present Arrangements, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partially conducted.

2.

The term "permanent establishment" particularly includes:

(1)

Management sites;

(2)

Branches;

(3)

The offices;

(4)

Factories;

(5)

Workshops; and

(6)

The mine, oil or gas wells, quarry or other places for exploitation of natural resources.

3.

The term "permanent institutions" also includes:

(1)

Building site, construction, assembly or installation project, or the supervisory and administrative activities related, but only limiting to the sites, projects or activities which last for more than 6 months;

(2)

The services, including advisory services, provided by an enterprise of one side directly or through employees or other employed personnel for the aforesaid item or related items in the other side, only limiting to the periods for such activities which continually or accumulatively exceed 6 months in any 12 months.

4.

Notwithstanding the aforementioned provisions of this article, the term "permanent establishment" shall not include:

(1)

The use of facilities specialized for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(2)

The inventory of goods or merchandise belonging to the enterprise specialized for the purpose of storage, display or delivery;

(3)

The inventory of goods or merchandise belonging to the enterprise specialized for the purpose of processing by another enterprise;

(4)

The fixed place of business established specialized for the purpose of purchasing goods or merchandise or of collecting information for the enterprise;

(5)

The fixed place of business established specialized for the purpose of conducting other preparatory or assistant activities for the enterprise;

(6)

The fixed place of business established specialized for the purpose of combining the activities listed in Items (1) to (5) of this Paragraph if such combination shall fall into all the activities of the fixed place of business with a preparatory or auxiliary nature.

5.

Notwithstanding the provisions of Paragraphs 1 and 2, when a person (in addition to the independent agents to whom the provisions of Paragraph 6 shall be applicable ) conducts activities in one side representing an enterprise of the other side , and regular exercises the authority to conclude contracts on behalf of the enterprise, that enterprise shall be considered to have a permanent establishment in the first-mentioned side as regards the activities that the person conducts for the enterprise, unless the activities of such person are limited to those mentioned in Paragraph 4 ,according to which, that the fixed place of business shall not be considered as permanent institution.

6.

An enterprise of one side shall not be considered to have a permanent establishment in the other side merely because it operates its business in the other side through a broker, general commission agent or any other independent agent. However, if all or nearly all of the agent's activities are carried out on behalf of the enterprise, he shall not be considered as an independent agent as referred to in this Paragraph.

7.

The fact that a company which is a resident of one side controls or controlled, a company which is a resident of the other side, or which operates business in the other side (whether through a permanent establishment or not), shall not itself render either company a permanent establishment of the other side.

Article 6

Income from Estate

1.

Income derived by a resident of one side from estate (including income from agriculture or forestry) situated in the other side may be taxed in the other side.

2.

The term "estate" shall have the meaning it has under the law of the side in which the property in question is situated. The term shall, in any case, include the property attached to the estate, livestock and equipment used in agriculture and forestry, the rights to which the general legal provisions related to real estates are applicable, usufruct of estate, as well as the rights to acquire non-fixed or fixed income due to exploiting or being entitled to exploit mineral resources and other natural resources of Ships and aircrafts shall not be regarded as estate.

3.

The provisions of Paragraph 1 shall apply to the income obtained from the direct using, leasing of estate or any other form of using the estate.

4.

The provisions of Paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise.

Article 7

Business Profits

1.

The profits of an enterprise of one side shall be taxable only in that side with the exception of the enterprise conducting its business in another side through a permanent establishment situated therein. If the enterprise conducting its business in the other side through a permanent establishment situated therein, the profits of the enterprise may be taxed in the other side, but only limited to those attributable to that permanent establishment.

2.

In addition to the application of the provisions of Paragraph 3 of this article, where an enterprise of one side conducting its business in the other side through a permanent establishment situated therein, the permanent establishment shall be regarded as an independent subordinate enterprise engaging in the same or similar activities under the same or similar circumstances. Such permanent establishment shall be treated differently and separately as an independent establishment from the enterprise. Under the aforesaid circumstances, the profits of this permanent establishment that may be obtained shall belong to the permanent establishment itself in each side.

3.

When determining the profits of a permanent institution, it should be allowed to deduct the expenses incurred in the business of the permanent establishment, including the executive and general administrative costs, regardless of whether they occur in the side in which the permanent institution is situated or in any other place. However, no such deduction shall be allowed as regards the royalties, remunerations or other similar funds paid by the permanent institutions to the general institution of the enterprise and any other offices of the said enterprise, commission for concrete service or management as provided, as well as the interest paid for the loans (expect with the expenses actually arising from the reimbursement ) , except banking enterprises., Similarly, no consideration may be taken, in determining the profits of a permanent establishment, for the royalties, remunerations or other similar funds paid by the permanent institutions to the general institution of the enterprise and any other offices of the said enterprise, commission for concrete service or management as provided, as well as the interests obtained due to the loans to the general institution or any other offices of the said enterprise (expect with respect to the reimbursement of actual expenses), except banking enterprises.

4.

If one is accustomed to decide the profits of the permanent institution by means of a certain percentage of their overall profits allocated to the respective units or any other methods as provided by laws, the provisions in Paragraph 2 herein shall not preclude that side from determining the profits to be taxed by this method of profit distribution. However, the result of adopting the method of profit distribution shall be consistent with the principles prescribed in this Article.

5.

No profits may be attributed to a permanent establishment because of mere purchase by that permanent establishment of goods or commodities for the enterprise.

6.

For the purpose of the aforementioned Paragraphs, the profits belonging to the permanent establishment shall be determined by the same method each year in addition to appropriate and sufficient reasons for alterations.

7.

If the profits include the income items that are provided separately in other articles of the present arrangements, the provisions of other articles shall not be affected by the provisions of this Article.

Article 8

Ocean Shipping, Air Parcel and Land Transport

1.

Revenues and profits from the operation of ocean Shipping, air parcel and land transport by ships, aircrafts or land transport vehicles made by an enterprise of one side in the other side shall be tax-free (in the Mainland, Including sales tax) .

2.

The provisions of paragraph 1 of this Article shall also apply to revenues and profits derived from the profits from the operations under partnership, joint ventures or participation in an international operating agency, It is merely limited to the revenues and profits obtained in light of the proportion of shares held in the aforementioned operations.

Article 9

Associated Enterprises

1.

When

(1)

an enterprise of one side participates directly or indirectly participates in the management control or capital of another enterprise, or

(2)

a same person directly or indirectly participates in the management, control or capital of an enterprise of one side and an enterprise of the other side;

In any case of the above, the commercial or financial relations between the two enterprises is different from the relationship between independent enterprises, so long as the profits which would, but as those conditions, the profits have been achieved by either enterprise, may be included in the profits of that enterprise and be taxed accordingly.

2.

When one side involves the profits of an enterprise of the other side in the profits of an enterprise of its side (the said part of profits should have been obtained by an enterprise of the said side in the light of two independent enterprises under the same circumstance) and levies on it , then the other side shall make appropriate adjustment to the amount of the tax charged therein on those profits, where the other side making appropriate adjustment. In determining the above adjustment, the other provisions of the present Arrangements shall be paid attention to, if necessary, the administrative authorities of the two sides shall consult each other.

Article 10

Dividends

1.

Dividends paid by a resident company of one side to a resident of the other side may be taxed in that other side.

2.

However, these dividends may also be taxed in the side of which the company paying the dividends is a resident and in accordance with the laws of that side, however, if the dividend is the beneficial owner of the other residents, the tax so levied shall not exceed:

(1)

5% of the total dividends if the beneficial owner directly holds at least 25% of the shares by the company to pay the dividends;

(2)

10% of the total dividends in other cases.

The administrative authorities of both sides shall consult to determine the method for the execution of the restrictive tax rate.

This Paragraph shall not affect the corporate profits tax levied on the profits used to pay dividends of the said corporate.

3.

The term "dividends" as used in this Article means the income from shares or other rights of participating in the profits of non-creditor relationship, and the income from other corporate rights that are regarded the same taxation treatment as the income from the shares by the laws of the side of which the company making the profit distribution is a resident.

4.

The provisions of Paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of one side, conducted business in the other side of which the company paying the dividends is a resident, through a permanent establishment situated in that other side and if the shares for which the dividends are paid are effectively associated with such permanent establishment. Under such circumstances, the provisions of Article 7 shall be applied.

5.

Where a company which is a resident of one side obtained profits or income from the other side, that other side may not impose any tax on the dividends paid by the company, even if the dividends paid or the undistributed profits consist in whole or in part of profits or income arising in the other side, with the exception of the dividends are paid to a resident of that other side or the shares held or other corporate rights as regards which the dividends are paid are effectively connected with a permanent establishment situated therein.

Article 11

Interest

1.

Interest occurred in one side and paid to a resident of the other side may be taxed in that other side.

2.

However, these interests may also be taxed in the side in which it arises and in accordance with the laws of that other side, however, if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 7 percent of the total interest. The competent authorities of both sides shall consult to determine the method for the execution of the restrictive tax rate.

3.

Notwithstanding the provisions of Paragraph 2 of this Article , the interest, which occurred in one side and is obtained by an institution acknowledged by the government of the other side or by the competent authorities of both sides, shall be tax-free in that side.

4.

The term "interest" as mentioned in this Article means income from a variety of claims, no matter whether they have guaranty or the right to share the debtor's profits; especially, income from government bonds, bonds or credit bonds, including their premiums or bonus. Penalty paid for postponing shall not be considered as interest as prescribed in this Article.

5.

The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of one side, conduct business in the other side in which the interest occurred, through a permanent establishment situated in that other side and if the debt-claim as regards which the interest is paid is effectively associated with such permanent establishment. Under such circumstances, the provisions of Article 7 shall apply.

6.

Interest shall be considered to arise in one side when the payer is the government of that side itself, a local authority or a resident of that side. Where, however, the person paying the interest, no matter he/it is the government or local authority of one side, or a resident of one side has in one side a permanent establishment in association with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be considered to arise in the side in which the permanent establishment is situated.

7.

Where, because of the special relationship between the payer and the beneficial owner or between both of them and other people, the amount of the interest, having regard to the debt-claim for which it is paid, beyond the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. Under this circumstance, the excess payments shall remain taxable in accordance with the laws of each side, other provisions of the present arrangements should be paid proper attention to.

Article 12

Royalties

1.

Royalties occurred in one side and paid to a resident of the other side may be taxed in that other side.

2.

However, these royalties may also be taxed in the side in which they arise in light of the laws of that side, but if the recipient is the beneficial owner of the royalties, the tax so charged shall not exceed 7 percent of the gross amount of the royalties. The competent authorities of both sides shall consult to determine the method for the implementation of the limited tax rate.

3.

The term "royalties" as mentioned in this Article means the varieties of funds paid as a reward for the use of, or the right to use, any copyright of literature, art or science work (including cinematographic films, or films or tapes for radio or television broadcasting), any patent, trademark, design or model, blueprint, secret formula or secret proceedings to pay the reward money, or the use or the right to use any industrial, commercial, scientific equipment or information related to industrial, commercial or scientific experiences.

4.

The provisions of Paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of one side, conducts business in the other side in which the royalties arise through a permanent establishment situated in that other side and if the right or property as regards which the royalties are paid is effectively associated with such permanent establishment. Under such circumstance, the provisions of Article 7 shall be applied.

5.

The royalties shall be considered as arising in one side when the payer is the government, a local authority or a resident of that side. Where, however, the person paying the royalties, no matter he/it is the government or local authority of one side, or a resident of one side, has in one side a permanent establishment in association with which the obligation to pay the royalty fees was incurred, and such royalties are borne by such permanent establishment, then such royalties shall be considered to arise in the side in which the permanent establishment is situated.

6.

Where, because of the special relationship between the payer and the beneficial owner or between both of them and other people, the amount of the royalties, regarding the use, right or information for which they are paid, which results in the payment of royalty payments in excess of the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the amount mentioned. Under this circumstance, the excess payments shall remain taxable in light of the law of both sides, but the other provisions of the present arrangements shall be paid proper attention to.

Article 13

Property Proceeds

1.

Proceeds derived by a resident of one side from the transfer of estate referred to in Article 6 and situated in the other side may be taxed in that other side.

2.

Proceeds from the transfer of chattel of business property part of a permanent establishment which an enterprise of one side has in the other side, including such gains from the permanent establishment transfer (either solely or accompanying the entire enterprise), may be taxed in that other side.

3.

Proceeds derived by the transfer of ships, airplanes or vehicles engaging in ocean shipping, air parcel or land transport or proceeds derived from the transfer of chattel belonging to the operation of such ships, airplanes or land transport vehicles shall be taxable only in that side.

4.

Proceeds from the transfer of shares of the shares of a company whose major property consists directly or indirectly of estate situated in one side may be taxed therein.

5.

Proceeds from the transfer of shares other than those referred to in Paragraph 4 equivalent to at least 25 percent in a company which is a resident of one side may be taxed in that side.

6.

Proceeds derived from the transfer of property other than property referred to in paragraphs 1 through 5 may be taxed in the only side in which the transferor is a resident.

Article 14

Employment Income

1.

In addition to the application of Articles 15, Articles 17, Articles 18, Articles 19 and Articles 20 of the provisions, the salaries, wages and other similar remuneration derived by a resident of one side due to an employment shall be taxable only in that side£¬except the activities are pursued in the other side. If the activities are pursued in the other side, such remuneration as is derived therefrom may be taxed in that other side.

2.

Notwithstanding the provisions of Paragraph 1 of this article, the remuneration derived by a resident of one side as regards an employment exercised in the other side shall be taxable only in the first-mentioned side if the following three conditions are satisfied at the same time:

(1)

The recipient is present in the other side for a total of less than 183 days consecutively within any 12 months after the beginning or end of the taxable year concerned;

(2)

the remuneration is not paid by or on behalf of the employer by an employer who is not a resident of the other side;

(3)

the remuneration is not assumed by a permanent establishment which the employer has in the other side.

3.

Notwithstanding the aforesaid provisions of this Article, remunerations derived from an employment activity exercised in ships ,airplanes or vehicles engaging in ocean shipping, air parcel or land transport operated by an enterprise of one side shall be taxable only in that side.

Article 15

Director's Fees

Director's fees and other similar payments obtained by a resident of one side in his capacity as a member of the board of directors of a company which is a resident of the other side may be taxed in that other side.

Article 16

Artists and Athletes

1.

Notwithstanding the provisions of Articles 7 and 14, residents of one side as performers, such as drams, film, broadcasting, or television artists, or musicians, or as athletes, incomes derived from their personal activities as such exercised in the other side may be taxed in the other side.

2.

Notwithstanding the provisions of Article 7 and Article 14 , where income derived from personal activities exercised by a performer or an athlete in his capacity as such accrues not to the performer or athlete himself but to another person, that income may be taxed in the side in which the activities of the performer or athlete are exercised.

Article 17

Pensions

1.

In addition to the provisions of Paragraph 2 of Article 18 , the pensions and other similar remunerations paid (whether divided payment or one-off payment) to a resident of one side because of previous employment shall be taxable only in that side.

2.

Notwithstanding the provisions of Paragraph 1 of this article, the pensions and other similar payments paid (whether divided payment or one-off payment) under the following pension plans, namely:

(1)

the public plan pushed as a part of the social security system of the government of one side or local authority of one side;

(2)

the present arrangements which allows particular individuals participant in order to ensure their obtaining the retirement welfare benefits and which is in accordance with the law of one side for tax purposes, shall only be taxed in the side which implement this plan.

Article 18

Government Services

1.

(1)The salaries, wages and other similar remunerations except pensions paid by the government of one side or the local authority to an individual who performs government duties to provide service to it shall be taxable only in that one side.(2) However, if such service is provided in the other side, the individual is a resident of the other side and the said resident doesn't become a resident of the other side only due to the provision of the said service the salaries, wages or other similar remunerations shall only be taxable in that other side.

2.

(1) Any pension (whether divided payment or one-off payment) paid by, or paid out of the funds created by the government of one side or local authority thereof as the employer to an individual who provides service to it shall be taxable only in that side.(2) However, such pension (whether divided payment or one-off payment) shall be taxable only in the other side if the individual is a resident the other side and if in line with the circumstances described in Item (2) of Paragraph 1 of this Article, it shall be taxable only in the other side.

3.

The provisions of Articles 14 , Articles 15, Articles 16 and Articles 17 shall be applied to the remunerations and pensions derived from the services provided to the business engaged by the government of one side or local authority thereof.

Article 19

Students

As for a student who is or was a resident of the other side before subsequently going to one side, and who is present staying in the said side only with the view of accepting education, the funds received by him for maintaining living and accepting education originated from outside the said one side shall be tax-free in the said one side.

Article 20

Other Incomes

1.

Items of income of a resident of one side, regardless of where they occurred , not provided in the above Articles of this Agreement, shall be taxable only in that side.

2.

The provisions of Paragraph 1 shall not apply to the incomes other than incomes derived from estate referred in Paragraph 2 of Article 6 if the recipient of such income, being a resident of one side, conducts business in the other side by a permanent establishment situated therein and if the right or property as regards which the income is paid is effectively connected with such permanent establishment. Under such circumstance, the provisions of Article 7 shall apply.

3.

Notwithstanding the provisions of Paragraphs 1 and 2, items of income of a resident of one side not provided in the aforementioned articles of the present arrangements and arising in the other side, may also be taxed in that other side in accordance with the law thereof.

Article 21

Methods for the Elimination of Double Taxation

1.

In the Mainland of China, the elimination of double taxation is as follows:

Where a resident of the Mainland obtains income from the Hong Kong Special Administrative Region, the amount of the Hong Kong income tax payable as regards that income according to the provisions of the present arrangements shall be allowed as a credit against the Mainland tax imposed on that resident. The amount of credit, however, shall not exceed the amount of the Mainland tax calculated as regards that income in light of the taxation laws and regulations of the Mainland.

2.

In the Hong Kong Special Administrative Region, the elimination of double taxation is as follows:

Apart from otherwise provisions by the regulations in the tax law of the Hong Kong Special Administrative Region concerning any tax deduction or counteraction on the tax paid by any place other than the Hong Kong Special Administrative Region , where a resident of the Hong Kong obtains income from the Mainland, the amount of the Mainland income tax payable in respect of that income in light of the provisions of the present arrangements shall be allowed as a credit against the Hong Kong tax imposed on that resident. The amount of credit, however, shall not exceed the amount of the Hong Kong tax calculated as regards that income according to the taxation laws and regulations of the Hong Kong Special Administrative Region.

3.

If a resident company of one side pays dividends to a resident company of the other side which holds directly or indirectly not less than 10 percent of the shares of the company which pays the dividends, the credit available for the company of the other side shall include the tax payable by the company who pays the dividends on the profits out of which relevant dividends arise from (but which shall not exceed the appropriate parts arising from the relevant dividend).

Article 22

Non-discriminatory treatment

1.

The taxation treatment of a permanent institution, which is established by an enterprise of one side in the other side, shall not be lower than the taxation treatment given by the other side to local enterprises which conduct the same activities. This provision shall not be comprehended as obliging one side to give to the residents of the other side any deduction, preference or derate which is given to the resident of the said one side due to civil status or family burden.

2.

In addition to application of the provisions of Paragraph (1) of Article 9 , Paragraph (7) of Article 11 , Paragraph (6) of Article 12 , interests, royalties, technical fees and other disbursements paid by an enterprise of one side to a resident of the other side shall, In determining the taxable profits of such enterprise, be deductible under the same circumstances as if they had been paid to a resident of the first-mentioned side.

3.

Enterprises of one side, the capital of which in whole or in part, directly or indirectly, owned or controlled by one or more residents of the other side, shall not be subjected in the first-mentioned side to any taxation or any requirement connected therewith which is different from, or heavier than, the taxation and connected requirements to which other similar enterprises of that first-mentioned side are or may be subjected.

Article 23

Consultative process

1.

When a resident of one side believes that the measures taken by one side or both sides result or will result for him in taxation not in line with the provisions of the present arrangements, he may, without consideration of the remedies provided by the internal laws of both sides, submit his case to the competent authority of the side of which he is a resident. The case shall be presented within 3 years after the date of the first notice of the taxation measures which do not accord with the provisions of the present Arrangements.

2.

If the administrative authority believes the views are reasonable and it is can not be satisfactorily resolved unilaterally, to resolve the case by reciprocally consulting with the administrative authority of the other side, in order to avoid the taxation which is not in line with the present arrangements. The agreement concluded between both sides shall be implemented without subjecting to their respective internal legal time limit.

3.

The competent authorities of both sides shall try to resolve the difficulties or doubts arising in the interpretation or implementation of the present Arrangements through consulting as to, and may also conduct negotiation on any issue about the elimination of double taxation, which is not covered by the present Arrangements.

4.

The administrative authorities of both sides may communicate with each other directly to reach an agreement in the sense of paragraphs (2) and (3) of this Article. In order to help to reach an agreement, the representatives of the competent authorities of both sides may hold interlocutions to have a verbal exchange of views.

Article 24

Exchange of Information

1.

The competent authorities of both sides shall exchange such information as is necessary for implementing the provisions of the present arrangements or of the internal laws of the both sides as regards taxes covered by the present arrangements insofar as the taxation thereunder is not contrary to the provisions of the present arrangements, especially the information on prevention of tax dodging and tax evasion. The exchange of information shall not be restricted by Article 1 . Any information so exchanged shall be treated as confidential letter, the method must be the same as dealing with the information obtained according to the laws of the said side the said information will only be informed the personnel or authority related to the examinations, levies, executions, prosecutions or verdicts as well as appeals related to the taxes contained in the present Arrangements (including courts and administrative departments).. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions (as for the Hong Kong Special Administrative Region, including the rulings made by Hong Kong Board of Review).

2.

In no case shall the provisions of Paragraph (1) of this Article be comprehended as to impose on the competent authority of either side the following obligations:

(1)

to take administrative measures in violation of the law and administrative practice prevailing that run counter in either side;

(2)

to provide information which is not available in accordance with the law or in the normal channels of the administration of either side;

(3)

to provide information which would disclose any information on trade, business, industry, commerce, professional secrets or trade process, or information which would violate public policy once disclosed.

Article 25

Other Rules

The present arrangements does not affect the right of each party to implement local laws and measures regarding tax evasion (no matter whether it is intituled as tax evasion). The laws and measures include the laws and measures which aim to prevent, deter, avoid or resist any transaction, arrangement or act which aims to grant, or will grant, tax benefits to any person.

Article 26

Entry into Force

1.

The present Arrangements shall enter into effect since the later date of the written notices exchanged by both sides to each other to indicate the completion of internal legal procedures in each side for the entry into force of the present Arrangements. The present Arrangements shall be applied to the incomes obtained in the following years:

(1)

in the Mainland, from any taxable year beginning on or after January 1 in the calendar year following that in which the present arrangements enter into force;

(2)

in the Hong Kong Special Administrative Region, from any taxable year beginning on or after April 1 in the calendar year following that in which the Agreement enters into force.

2.

The present arrangements between the Mainland of China and the Hong Kong Special Administrative Region on Avoiding Double Taxation on Incomes officially signed on February 11, 1998 shall cease to be effective from the date of start of application of the present arrangements to the relevant tax categories in accordance with the Paragraph 1 of this Article.

3.

Paragraph 6 of Article 11 of the Air Transport Arrangement between the Mainland of China and the Hong Kong Special Administrative Region officially signed on February 2, 2000 shall cease to be effective from the date of start of application of the present arrangements to the relevant tax categories in accordance with the Paragraph 1 of this Article.

Article 27

Termination

The present arrangements shall be valid for a long term, but either side may, on or before June 30 in any calendar year beginning after the expiration of a period of five years from the date of its entry into force, give written notice to the other side to terminate the present arrangements. In such circumstance, the present arrangements shall cease to be effective from the following year:

(1)

in the Mainland of China, from the taxable year beginning on or after January 1 in the calendar year following that in which the notice of termination is issued.

(2)

in the Hong Kong Special Administrative Region, from the taxable year beginning on or after January 1 in the calendar year following that in which the notice of termination is issued.

The following representatives, officially authorized, have signed the present Arrangements as evidence.

The present Arrangements were signed in Hong Kong on August 21, 2006 with two copies both in Chinese languages.

Xie Xuren Director of the State Administration of Taxation of the People's Republic of China

Donald Tsang Yam-kuen

Chief Executive of the Hong Kong Special Administrative Region of the People's

Republic of China

Protocol to the present arrangements between the Mainland of China and the Hong Kong Special Administrative Region on Avoiding Double Taxation on Income and the Prevention of Tax Dodging and Tax Evasion

1.

With regard to Paragraph 2 of Article 3 , the term "penalty or interest", in the Hong Kong Special Administrative Region, including but not limited to the funds levied otherwise due to defaulting the tax of the Hong Kong Administrative Region and sought together with the arrearages, levy tax arrears, as well as any additional tax assessed for violating or failing to comply with the tax law of the Hong Kong Administrative Region.

2.

In terms of Paragraph 4 of Article 13 , the term "property" shall be comprehended as the value of property and the term "major" shall be comprehended as not less than 50%.

3.

In terms of Paragraph 1 of Article 24 , without the consent of the side which originally provided the information, no information received may be disclosed to any other jurisdictions for any purpose.

The following representatives, officially authorized, have signed the present Protocol as evidence.

The present Protocol was signed in Hong Kong on August 21, 2006, with two copies both in Chinese languages.

Xie Xuren

Director of the State Administration of Taxation of the People's Republic of China

Donald Tsang Yam-kuen

Chief Executive of the Hong Kong Special Administrative Region of the People's Republic of China