Red tape over double taxation causes confusion

PUBLISHED : Tuesday, 03 July, 2012, 12:00am
UPDATED : Tuesday, 03 July, 2012, 12:00am


It was good news for many Hongkongers when new tax rules were launched last month that ease their double-taxation burden when they work on the mainland.

But the rules are being applied differently in various cities, resulting in potential new hurdles for Hong Kong- and Macau-based expats who work part of the year over the border, according to accountants close to the issue.

The new system lightens the tax load for employees of Hong Kong-based companies who work on the mainland by calculating their taxes on a pro-rata basis - depending on what proportion of their time was spent, and income earned, on the mainland.

Some cities, however, require more paperwork from taxpayers than others.

Officials in Shenzhen and Guangzhou say a key document - a tax resident certificate issued by Hong Kong's Inland Revenue Department - is not necessary for Chinese people working for Hong Kong-based companies. They need only show their Hong Kong identity card, according to accountant Sam Pang of Ernst and Young.

In other cities, including Dongguan and Zhuhai, a tax resident certificate is required.

Guangdong tax officials have said that all cities might follow Shenzhen in future and ask for the certificate only in special cases, such as foreigners who claim to pay tax in Hong Kong, said Jacky Chu of PricewaterhouseCoopers.

Expats working for Hong Kong-based companies would need the certificate in all mainland cities, the accountants said.

Mainland tax officials had to request the certificate from Hong Kong and this might present some problems, the accountants said. Many mainland officials are unfamiliar with the new system and with Hong Kong's tax bureaucracy.

Pang said: 'We asked different tax bureaus on the mainland and they all had different ideas on how to go about [getting the certificate],' Pang said. 'Many of them don't know how to apply for the form, and are doing it on a case-by-case basis. I'm sure many officers need some time to get used to it, like most new tax rules on the mainland.'

But there is little time to get used to the new system - with a mid-July deadline looming - which went into effect on June 1.

And Hong Kong and Macau employers must file a form - Guoshuifa [2009] No124 - to prove their employees are tax residents of Hong Kong or Macau by mid-July, to avoid them being double-taxed on their entire year's income.

The new tax rule for Hong Kong and Macau residents was announced in a circular issued by the State Administration of Taxation in May, after several years of lobbying for it by businesses. About 175,000 people based in Hong Kong - expats and Chinese alike - will benefit from the rule.

Those who spend fewer than 184 days on the mainland will be taxed on the portion of their salary earned there and number of days they spend on the mainland. For those who spend more than 183 days on the mainland, the pro-rata rate will be based on the proportion of the time they were present on the mainland.

Business owners, some of whom have been paying part of their staff's 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 some say it will not be enough of an incentive for bosses to hire more Hongkongers for cross-border work.

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.