What are the tax consequences for a processing as opposed to a manufacturing factory in China?
A processing factory imports materials into China to be processed for export and manages the operations from Hong Kong. Such an arrangement may not be covered by the Arrangement. Practice Note 21 issued in 1996 by Hong Kong's Inland Revenue Department provided that half of the profits from such processing arrangements would be taxed in Hong Kong. The Arrangement has not specified any change to this rule.
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