Where to pay tax when in and out of HK

PUBLISHED : Sunday, 07 March, 2010, 12:00am
UPDATED : Sunday, 07 March, 2010, 12:00am

I am a Hong Kong resident, and recently finished a six-month secondment in Singapore. My employment contract is for four years with a HK-based company, and the salary is in HK dollars. My company advises that it would be cheaper to pay the six months' Singapore taxes (which have already been paid to Singapore's inland revenue department via the Singapore office) and six months' HK taxes for financial year 2009-2010. Alternatively, there is an option to pay only HK taxes for the year. I would like to know if a one-off secondment allows for any HK tax advantages if I opt to pay only HK taxes for 2009-10?

Nick Chan

I am not entirely clear on what basis the Singapore tax authorities would agree to waive any entitlement to tax in Singapore. Generally, if you are there for six months, you would have done sufficient to ensure that Singapore tax is payable, and paying the tax in Hong Kong would not relieve you of your liability to pay your tax in Singapore.

You would need to be careful that you don't still have liability in Singapore. It is possible to be liable to tax in two places at once on the same income. Tax treaties exist to ensure that income is not double taxed and to decide who has the taxing right where double tax may apply. Unfortunately there is no tax treaty between Hong Kong on Singapore which gives you a right to relief from double taxation.

It is normal practice for one revenue authority to give a credit for tax paid in one jurisdiction against tax due on the same income in another, but you have to rely on the goodwill of the relevant tax authority. I would imagine that your employer has looked into this quite carefully. I have very little detail to go on, so assume that the options they have given you are correct and properly thought out. Without a lot more information I couldn't comment further on that aspect.

You ask whether you still have planning opportunities available to you in Hong Kong. You do. You could take advantage of most of the tax breaks I outlined in my article 'Talk to your employers and cut your tax bill', January 31, 2010, except the one relating to the non-Hong Kong employment. It appears as though you are employed by a Hong Kong company, and therefore claiming an exemption from Hong Kong tax for the time that you are out of Hong Kong travelling would not seem to be an option in the circumstances you outline.

I moved from Hong Kong last year, after working here for eight years, to the mainland to work for the same company. I have a permanent Hong Kong Identity Card, and the company is Hong Kong-registered. I am being paid part of the salary on the mainland and the outstanding portion in Hong Kong. I have been told that unless I spend more then 60 days in Hong Kong in a year, my Hong Kong portion should not be taxed. Please advise if this is correct and what would be needed to provide for the Hong Kong portion to be tax-free.

Douglas Geiwald

If you are working on the mainland, presumably the Hong Kong company must have established a presence there via a representative office, a wholly foreign-owned enterprise or a joint venture, and you should be on the books of that entity and subject to tax on the mainland on the money that you earn while there. For the first five years that you are on the mainland, you would generally not be taxed on anything other than income arising on the mainland, so any money paid to you while you are outside the mainland by a non-mainland entity for services rendered while outside the mainland would generally escape mainland tax. It is correct that if you are in Hong Kong for less than 60 days a year, you would not generally be subject to Hong Kong tax. If that portion of your money was paid by a Hong Kong company, you could well escape both Hong Kong and mainland tax on that money as long as this is all supported by correct documentation.

I have recently transferred to my company's UK headquarters and am employed by them in the United Kingdom with a new contract. When I transferred, in November, I had to finalise my Hong Kong tax bill. I still visit Hong Kong on company business, and it is probable that these visits will exceed 60 days. My company has advised me that they will inform the Inland Revenue Department (IRD) of the amount of time I spend in Hong Kong during any one tax year. Is this necessary or even legal? Assuming it is necessary, how are the days in Hong Kong calculated, as I arrive generally on the morning of one day and depart the following evening? I have been told that the above example would generate two days towards the 60-day count, but when it comes to the tax payable, it would only count as one. Is this correct?

Further, when employed in Hong Kong, I was contributing to the MPF HK$1,000 per month (the minimum). My employer was required by the MPF to also contribute HK$1,000, but as my contract had a clause saying I was responsible for their contributions, I was in fact paying HK$2,000 per month, but my monthly salary slips stated otherwise. I was only allowed by the IRD to claim HK$12,000 per annum instead of HK$24,000. Did my company break the law in this case, and if not, am I allowed to determine if they were claiming 'their' contribution at my expense as a tax deduction?

Name withheld on request

Your question doesn't say whether you are employed by a UK a British company or whether your contract is still with a Hong Kong company. If it is the latter, they would have a duty to report that you have been in Hong Kong for more than 60 days during any tax year. A UK company would not have any duties to make any sort of report to the Hong Kong IRD. Hong Kong does count the day of arrival and departure when calculating the 60 days, so if you arrive in the morning and depart the following evening, that will count as two days for tax purposes.

Your question about the MPF is interesting. The legislation states that a company must make contributions to your MPF. It is not possible to contract out of statutory obligations, so on the face of it, your company has not acted correctly by failing to make those contributions. I have not come across a case like this before where a company attempts to transfer responsibility for paying their part of the MPF contribution back to the employee, and find it most strange. If it is actually you who are making the payment, obviously your company should not be claiming a deduction for a payment that it is not actually making.