Are you one of the thousands of professionals navigating the complex tax landscape between Hong Kong and Mainland China? With digital tax systems evolving rapidly and cross-border opportunities expanding in the Greater Bay Area, understanding dual tax filing obligations has never been more critical—or more challenging. This comprehensive guide breaks down everything you need to know about managing your tax obligations across both jurisdictions in 2024-2025.

Understanding the Hong Kong-Mainland China Double Taxation Arrangement

The Hong Kong-Mainland China Comprehensive Arrangement for the Avoidance of Double Taxation (DTA) was first signed in 2006, establishing a crucial framework that prevents double taxation and fiscal evasion. This arrangement has undergone significant amendments to address evolving economic realities and international tax standards.

Key Protocol Updates and Their Impact

The Fourth Protocol, effective from April 1, 2015, introduced reduced withholding tax rates on cross-border payments. Under this protocol, dividend remittances from Mainland China to Hong Kong are subject to a 5% withholding tax rate, while interest and royalties face a 7% rate. Importantly, this protocol also incorporated anti-abuse provisions through a “main purpose test” to prevent treaty shopping.

The Fifth Protocol, which became effective in Mainland China on January 1, 2020 and in Hong Kong from April 1, 2020, further refined the arrangement. This protocol introduced enhanced mechanisms for determining tax residency when an entity is resident in both jurisdictions, considering factors such as the place of effective management, place of incorporation, and other relevant circumstances.

Certificate of Resident Status (CoRS)

The Certificate of Resident Status (CoRS) serves as the official proof required for Hong Kong residents to claim DTA benefits. The Hong Kong Inland Revenue Department (IRD) issues CoRS to qualifying residents upon application. A CoRS issued for a specific calendar year generally remains valid as proof of Hong Kong resident status for that year and the two succeeding calendar years.

Individuals qualify for Hong Kong resident status if they stay in Hong Kong for more than 180 days during a year of assessment, or for more than 300 days in two consecutive years of assessment (one of which is the relevant year). Companies incorporated or constituted in Hong Kong, as well as those incorporated outside Hong Kong but managed or controlled in Hong Kong, can also obtain CoRS.

The Critical 183-Day Tax Residency Rule

How Days Are Counted: The 24-Hour Rule

The 183-day rule forms the cornerstone of tax residency determination in Mainland China. Under current regulations, both China-domiciled individuals and non-China-domiciled individuals who reside in China for 183 days or more in a tax year are considered residents for Individual Income Tax (IIT) purposes. Crucially, residents are subject to IIT on their worldwide income.

For Hong Kong residents, the day-counting methodology is particularly important: any stay of 24 hours or more in the Mainland counts as a full day of residence, while any stay of less than 24 hours does not count. This means cross-border commuters who return to Hong Kong within 24 hours can potentially avoid accruing residency days.

The Six-Year Rule and Worldwide Income Taxation

Foreign individuals, including Hong Kong residents, who reside in China for 183 days or more annually face an additional consideration: the six-year rule. Under this policy, individuals who reside in China for 183 days or more per year for over six consecutive years will be subject to IIT on their worldwide income from the seventh consecutive year onward.

However, there is an important reset mechanism: the six-year count is reset if the individual spends more than 30 consecutive days outside of China during any tax year. This provision provides strategic planning opportunities for long-term residents who wish to avoid worldwide income taxation.

Special Treatment for Short-Term Residents

Hong Kong residents who spend limited time in the Mainland enjoy preferential treatment under specific circumstances:

• Under 90 Days: Hong Kong residents who reside in the Mainland for a cumulative period not exceeding 90 days in a tax year can have their Mainland wages and salaries exempted from IIT, provided these amounts are paid by employers outside the Mainland.
• 90-183 Days: For those residing in the Mainland for more than 90 days but less than 183 days, only wages and salaries earned from work performed in the Mainland are subject to IIT.
• DTA Protection: Under the DTA, remuneration received by a Hong Kong resident working in the Mainland may be fully exempted from Mainland taxation if: (1) the individual is present in the Mainland for not more than 183 days in any 12-month period, (2) the remuneration is paid by an employer who is not a Mainland resident, and (3) the remuneration is not borne by a permanent establishment in the Mainland.

Comparing Tax Rates: Mainland China vs Hong Kong

Understanding the Tax Rate Differential

The stark difference between Mainland China’s progressive IIT rates (ranging from 3% to 45%) and Hong Kong’s significantly lower salaries tax rates (2% to 17%, with a 15% standard rate cap) creates substantial planning opportunities and challenges for cross-border workers.

In Mainland China, comprehensive income (combining employment income, remuneration for labor services, author’s remuneration, and royalties) is subject to the progressive rate structure after a standard deduction of RMB 60,000 per year (approximately USD 8,500), plus special deductions, special additional deductions, and other allowable deductions.

In Hong Kong, the dual-track system allows taxpayers to choose between the progressive rates (2%-17%) or the standard rate of 15% applied to net assessable income after deducting allowable expenses (excluding personal allowances). This structure ensures that higher earners never pay more than 15% effective tax on their Hong Kong-sourced income.

Greater Bay Area Tax Subsidy Program

Program Extension to 2027

In a move to attract and retain talent in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), the Chinese Ministry of Finance extended the preferential Individual Income Tax policies until December 31, 2027. This extension provides certainty for foreign talent, including Hong Kong and Macau residents, who work in the nine mainland GBA cities: Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqing.

How the Subsidy Works

Under this preferential policy, eligible individuals can receive a government subsidy for the portion of IIT paid on their taxable income that exceeds 15%. This effectively equalizes the tax burden between Hong Kong and Mainland China, addressing the significant rate differential that would otherwise discourage cross-border employment.

The subsidy is subject to an annual cap of RMB 5 million per taxpayer, providing substantial relief for high earners. By reducing the effective tax rate to approximately 15%, the policy removes one of the major financial disincentives for talented professionals considering employment opportunities in the GBA.

Eligibility Requirements

To qualify for the GBA IIT subsidy, applicants must meet the following criteria:

• Be a permanent resident of Hong Kong or Macau, a Hong Kong resident who has obtained residency through talent/professional programs, a Taiwan region resident, a foreign national, or a mainland Chinese returnee with overseas permanent residency
• Work in one of the nine designated mainland GBA cities and pay taxes according to local law
• Abide by all applicable laws, regulations, scientific research ethics, and integrity requirements
• Meet the definition of “high-end talent” or “talent in shortage” as defined by the relevant municipality

Hong Kong’s Foreign-Sourced Income Exemption (FSIE) Regime

FSIE 2.0: The 2024 Expansion

On January 1, 2024, Hong Kong implemented the expanded Foreign-Sourced Income Exemption regime (FSIE 2.0), representing a significant evolution in the city’s territorial tax system. The revised regime brings Hong Kong into alignment with European Union regulations and addresses concerns that led to Hong Kong’s temporary placement on the EU watchlist.

On February 20, 2024, Hong Kong was successfully removed from the EU watchlist, confirming that the FSIE 2.0 regime meets international tax good governance standards.

Expanded Scope of Covered Income

Beginning January 1, 2023, specified foreign-sourced income arising outside Hong Kong and received in Hong Kong by a member of a multinational enterprise (MNE) group carrying on business in Hong Kong became potentially taxable. The FSIE 2.0 regime, effective from January 1, 2024, significantly expanded the scope of covered income to include:

• Interest income
• Dividend income
• Income from the use of intellectual property (IP)
• Disposal gains from equity interests (original FSIE)
• Disposal gains from all types of assets (new under FSIE 2.0), including both movable and immovable property, regardless of whether capital or revenue in nature, and whether financial or non-financial

Three Pathways to Exemption

Digital Tax Filing Systems: Practical Compliance

Hong Kong’s eTax System

Hong Kong has progressively digitalized its tax administration through the eTax platform, which allows taxpayers to:

• File tax returns electronically (Individuals, Profits Tax, Property Tax, Employer’s Returns)
• Apply for Certificates of Resident Status online
• View tax assessments and correspondence
• Make tax payments via PPS, credit card, or direct debit
• Submit supporting documents electronically
• Manage tax obligations for multiple entities under one account

Mainland China’s IIT App and Digital Infrastructure

Mainland China has made substantial investments in digital tax administration, centered on the Individual Income Tax App (个人所得税APP). This comprehensive platform enables taxpayers to:

• File annual comprehensive income reconciliation returns
• Claim special additional deductions (children’s education, continuing education, medical expenses, housing loan interest, housing rent, elderly care)
• Register foreign tax credits for tax paid abroad
• Track withholding information from employers in real-time
• Apply for tax refunds electronically
• Update personal information and tax residency status

Key Deadlines for Dual Filers

Record Retention and Documentation Requirements

Seven-Year Retention Rule

Both Hong Kong and Mainland China impose a seven-year record retention requirement, though with different specific provisions. This alignment simplifies compliance for dual filers, as maintaining records for seven years satisfies both jurisdictions.

In Hong Kong, Section 51C of the Inland Revenue Ordinance requires every person carrying on a trade, profession, or business to keep sufficient records of income and expenditure to enable assessable profits to be readily ascertained. These records must be retained for at least seven years after the completion of the transactions to which they relate.

Essential Documents for Dual Filers

Cross-border taxpayers should maintain comprehensive documentation including:

• Employment and Income Records: Employment contracts, salary slips, bonus documentation, commission records, fringe benefits details
• Residency Documentation: Passport entry/exit stamps, travel records, residence permits, tenancy agreements, utility bills
• Tax Filing Records: Filed tax returns for both jurisdictions, assessment notices, payment receipts, correspondence with tax authorities
• DTA Documentation: Certificate of Resident Status, DTA benefit claim forms, supporting evidence for treaty positions
• GBA Subsidy Records: Subsidy applications, approval notices, payment confirmations, supporting eligibility documentation
• FSIE Documentation: Economic substance evidence (employee records, office leases, operating expenditure), participation requirement evidence (shareholding certificates, holding period proof), nexus requirement evidence (R&D records, IP development documentation)

Strategic Tax Planning for Cross-Border Professionals

Optimizing Employment Structure

Cross-border professionals should carefully consider employment structure options:

• Hong Kong Employment with Mainland Secondment: Can preserve DTA benefits if properly structured with no Mainland permanent establishment
• Dual Employment: May optimize tax burden but requires careful allocation of income and time between jurisdictions
• Mainland Employment Only: Simplifies compliance but may result in higher overall tax burden without GBA subsidy eligibility
• Service Company Structure: For self-employed professionals, establishing a Hong Kong service company may provide flexibility, but FSIE implications must be carefully analyzed

Maximizing Deductions and Credits

Dual filers should ensure they claim all available deductions in both jurisdictions:

• Hong Kong (2024-25): Basic allowance (HK$132,000), married person’s allowance (HK$264,000), child allowance (HK$130,000 each), dependent parent/grandparent allowance (HK$50,000 for 60+), single parent allowance (HK$132,000), home loan interest deduction (max HK$100,000), MPF contributions (max HK$18,000/year)
• Mainland China: Standard deduction (RMB 60,000/year), special additional deductions (children’s education, continuing education, serious illness medical expenses, housing loan interest or rental, elderly care support), social insurance contributions, housing fund contributions
• Foreign Tax Credits: Both jurisdictions provide relief for foreign taxes paid, though mechanisms differ and limitations apply