Tax bills shrink for HK workers on mainland

PUBLISHED : Friday, 25 May, 2012, 12:00am
UPDATED : Friday, 25 May, 2012, 12:00am


Hongkongers who spend most of their time working on the mainland will see their tax bills reduced thanks to new rules taking effect next month that are aimed at eliminating double taxation.

Any resident who spends more than 60 days per year in Hong Kong must pay taxes, even if their work is outside the city, but they can reduce the sum on a pro rata basis if they pay taxes elsewhere.

But anyone who spends more than 183 days on the mainland is taxed on their entire salary - regardless of how much tax they pay in Hong Kong or any other territory.

The changes, announced in a circular issued by the State Administration of Taxation, will see the mainland bring its calculation methods into line with those used in Hong Kong, meaning they will pay taxes based on the days they physically spend on the mainland - although the change will only apply to residents of Hong Kong or Macau working for a company from one of the special administrative regions.

Business owners, some of whom paid part of their employees' mainland tax bills, said the change would reduce their financial burden and increase their flexibility in sending Hong Kong employees to work over the border.

But one personnel consultant said the changes would not be enough of an incentive for bosses to hire more mainland workers over Hongkongers.

A tax expert said a Hongkonger on 100,000 yuan (HK$122,800) per month could save up to 172,000 yuan in taxes for the year.

Wilson Shea Kai-chuen employs a Hongkonger to manage the 100 staff at his packaging factory in Dongguan. He said the employee used to pay 48,500 yuan in taxes per year on his monthly salary of 25,000 yuan. The changes will cut his tax bill by 14,000 yuan.

Shea had to pay part of the employee's mainland tax bill, so he would save money.

'Hong Kong employees usually earn much higher salaries [than staff from the mainland], so the impact of the tax reduction will be big,' he said.

Although Hong Kong bosses are increasingly hiring mainland managers for their operations across the border, most favour keeping some Hong Kong staff to ensure they have people with similar attitudes to operations and cost controls to help guide mainland staff.

Shea said a factory employing 1,000 people would normally have about 10 Hong Kong staff in merchandising, financial and sales positions.

Stanley Lau Chin-ho, of the Federation of Hong Kong Industries, said the change would give employers more flexibility in considering whether to send staff to work on the mainland. 'It will no longer be necessary for us to count the days to ensure that employees don't work more than 183 days on the mainland.'

Kate Lai Yi-ki, a senior tax manager for KPMG, said well-paid employees would be the big winners due to the mainland's progressive tax rates. Based on the top marginal tax rate of 45 per cent, an employee on 100,000 yuan per month who spent slightly more than half the year on the mainland would pay 172,000 yuan less.

Marcellus Wong Yui-keung, a tax partner at PricewaterhouseCoopers Hong Kong, said the fact the tax cut would only apply to Hong Kong and Macau residents employed by companies from the two cities meant workers from the special administrative regions would be more competitively priced.

The 2010-11 financial year saw 10,731 people seek to have their Hong Kong tax bill reduced on the basis that they paid taxes in another jurisdiction after working there for part of the year, government figures show.

Government statistics show that the number of Hong Kong residents who worked on the mainland fell from 218,000 in the 12 months to September 2008 to 175,000 in the year to September 2010, the last year for which statistics are available.

Some 90 per cent worked in Guangdong. Most of them worked in the manufacturing, import-export and wholesale sectors.

Edmond So, general manger of Besteam Personnel Consultancy, said the tax cut would be an incentive to hire Hongkongers, but would not be enough to reverse the decline in the those working on the mainland.

And Shea admitted that other cost pressures meant the money he saved was unlikely to be enough to offer his manager a raise.

172,000 yuan

The amount in yuan a Hongkonger on 100,000 yuan a month could save in taxes

- 175,000 worked on the mainland in 2010