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SCMP Reporter

AN EMPLOYEE'S nest-egg could provide a feast for the tax departments both in Hong Kong and - for expatriates returning home, or emigrants - the next destination.

   The risk was highlighted earlier this week by speculation that British Inland Revenue could impose a 40 per cent windfall tax on the $1 million golden goodbye for British-appointed expatriate civil servants.

   As if to prove the saying, ''don't count your chickens before they hatch'', it pays to know how big the taxman's bite could be when planning your future around severance or relocation packages.

   The number of expatriates in Hong Kong has hit a record high with Japanese the fastest-growing and British arrivals booming.

   According to the Immigration Department, there are more than 300,000 expatriates, from the 10 most popular destinations, in Hong Kong.

  They are the Philippines, United States, Britain, Thailand, Canada, India, Australia, Japan, Indonesia and Malaysia.

   Tax experts from consultants Coopers and Lybrand have highlighted some of the personal tax problems that can arise from tax departments in Hong Kong, Britain, Australia, the United States and Canada.

 HONG KONG: Nick Hammans, tax partner, said: ''A lump sum paid by an employer will normally be subject to Hong Kong salaries tax - currently set at 15 per cent - in the hands of an employee in Hong Kong if it is attributable to services rendered in Hong Kong or is derived from a Hong Kong employment contract.''   But Hong Kong has far more generous taxation concessions than most and it pay the taxpayer to find ways of minimising liability.

   Lump sums may not be taxable when they are derived from an authorised or exempted occupational retirement scheme.

   Equally, compensations for loss of office or loss of status that is not part of the terms of an existing service contract, or reasonable relocation expenses, such as where an employee is relocating to another country, are also likely to be exempted.

   Mr Hammans said: ''The lump sum will normally be taxable if it is deferred pay or bonus. If it is paid after the employment ceases, it can be related back to the period of employment although in some cases it can be spread over the last three years of your employment.''  BRITAIN:A lump sum received for services provided in Britain - whether resident there or not - can be taxable at income tax rates up to 40 per cent.

  But those who receive payment after residence in Britain has commenced, whether for British services or not, will have to pay British income tax.

   Mr Hammans said: ''In addition, national insurance rates may be payable at a rate of 10 per cent for the employee and 10.2 per cent for the employer.''    In certain circumstances, such as a golden handshake, the first $360,000 of some lump sums may be exempt.

   He said: ''If possible, taxpayers should receive lump sums for non-British duties when non-resident for British income taxes. The timing of the receipt and the return should be reviewed as in some cases the British Inland Revenue can deem income tax residence from the start of the tax year on April 5.''  AUSTRALIA: A lump sum payable on retirement or termination of employment is taxable. It is called an ''eligible termination payment'' and is payable if it is received by an Australian resident or for work done in Australia.

  It is taxable on a receipts basis - that is, liability arises upon receipt - and could be taxable if received after the person becomes a resident of Australia for tax purposes.

   Alg Vaitiekunas, tax manager, said: ''It is best to ensure the payment is made before setting foot back in Australia at which point the person is likely to become a tax resident in Australia.''    The top rate of tax in Australia is 47 per cent.

CANADA:Amounts received while a resident of Canada, even if for service before entering the country, are taxable.

   Barry Macdonald, tax partner, said: ''Taxpayers should try to receive bonuses, including lump sum pension withdrawals, before becoming resident in Canada. Stock options should be exercised before residency. In some cases, a new immigrant can delay his residency even though he has already emigrated.'' Alternatively, an offshore trust can be used to enable a five-year tax holiday.

   Trusts must be carefully constructed and it is necessary to seek independent expert opinion.

 UNITED STATES:Uncle Sam taxes his citizens and permanent residents - that is, green card holders - on their worldwide income regardless of the source or place of payment.

   Foreign nationals who meet the substantial presence test - that is, they are present in the US for more than 183 days in the calendar year - are treated as resident aliens and are taxed on their worldwide income.

   Those that are non-resident are taxed only on their income from the US.

   Frances Tsang, tax manager, said: ''For US citizens and non-resident aliens, lump sum payments other than those derived from certain types of pension are generally taxable wherever sourced. Non-resident aliens are only taxed on United States sourced lump sum payments.

   ''For state tax purposes it may be advisable to receive a lump sum payment before an individual returns to the United States since certain states might take the lump sum when it is received by a state resident, even though the amount relates to services performed prior to becoming a state resident.'' 



Taxman squeezes the golden handshake