Depending on the foreign source of employment, it can be decided whether or not one would get a tax exemption Hong Kong of any amount or the whole of your salary taxes. This article will discuss the concept of territorial taxation used in Hong Kong as well as the application of different types of taxpayers under this concept.
Content Outline
The Concept of Territory as a Basis for Taxation
The principle of salaries tax in Hong Kong is stipulated as territorial concept. Such an approach would be that all income arising in, or derived form, Hong Kong from an office, employment or any pension be assessable regardless of whether tax on that income has been paid in another jurisdiction. In the next sections, the paper is going to explain how these circumstances are relevant to the general taxpayers.
The Directors
The fact that your role is described by the responsibilities and duties in the Companies Ordinance, means you hold the position of a director of Hong Kong Company. Besides, you can be a director of an overseas company upon fulfilling the obligations which is similar to that laid down by the host country law. In general, as a director of a company resident in Hong Kong, your full income from that office in Hong Kong will be subject to salaries tax. This does not depend on how many days during the year of assessment you have spent in Hong Kong and no tax exemption Hong Kong or relief is available.
Employees
If you are an employee whose employment is based in Hong Kong, your full income is chargeable to salaries tax even if some of the work is done outside Hong Kong. Nevertheless, you are able to exclude or exempt a certain amount on a yearly basis provided you meet certain conditions.
The Complete or Partial Tax Exemption Hong Kong from Taxable Income or Tax Credit
It could be an option to fully exempt your income or to also file for tax credits if you can satisfy the conditions while filing the Individual Income Tax Return (BIR 60) and its Appendix.
The Hong Kong Residents Who Are Working on The Mainland of China Through the Border
In case you have worked for part of the year overseas in Mainland China and it is the year of assessment, all of your income in that year will be taxed as salaries tax in Hong Kong. Your income shall also be liable to Individual Income Tax in the Mainland, but you will be exempted from being charged the Income Tax in case you meet certain criteria.
If the assessment year is up to 2017/18, you shall apply for income tax exemption Hong Kong under section 8(1A)(c) of the Inland Revenue Ordinance (“IRO”) in respect of that income portion. On the other hand, you shall claim for tax credit under section 50 of the IRO and Arrangement between the Mainland of China and the HKSAR for the Avoidance of Double Taxation and Prevention of Fiscal Evasion concerning Taxes on Income (“the Comprehensive Arrangement”),
Starting from the year of review 2018/19, there will be no application of section 8(1A)(C) to income that is generated by an individual who performs services in a place that has signed a comprehensive income avoidance double taxation agreement or arrangement with Hong Kong. If you are a Hong Kong resident and have rendered service in the Mainland and paid individual income tax on such income in the Mainland, you can enjoy the tax credit under section 50 as per the Comprehensive Arrangement.
To validate the application for an tax exemption Hong Kong or tax credit, you have to submit proof of your individual income tax payment.
Additional Information
Additional information on the tax arrangements between Mainland China with the HKSAR that target the avoidance of double taxation and prevention of fiscal evasion can be found in the link below.
FAQ about Double Taxation Relief
Understanding Tax Liabilities for Newly Employed Individuals in Hong Kong
If you have just been employed by a company in Hong Kong and that is why you are traveling to Hong Kong or you are already in Hong Kong and you have been appointed to work in a company in Hong Kong, you need to learn about your tax liabilities. Resident individuals liable to salaries tax are obliged to pay tax on all income accrued from or related to employment in Hong Kong during the 1 April to 31 March period.
Related Article: Foreigners’ Guide to HK Income Tax
When the income tax is paid outside Hong Kong, you should also assess whether you are subject to double taxation, and what you can do to decrease this tax burden.
Related article: Explore Double Taxation Agreement Hong Kong Tax Treaties
How Fastlane Group Can Help?
Applying for tax exemption Hong Kong is a very complicated and overwhelming process that requires very precise preparation, which is why consulting with experts and seeking help from a professional is highly recommended.
Fastlane Group is an established corporate services, accounting, audit, and tax advisory services provider in Hong Kong. If you need help with filing your tax return or professional accounting services, feel free to contact FastLane Group.