How Hongkongers working in mainland China can avoid global income tax
- As long as they do not have a home or a family there, a 30-day trip from the country every five years could be enough to avoid the extra levy
Hongkongers working in mainland China who face being taxed on their global earnings have been given a way of avoiding the extra duty – as long as they do not own a home or raise a family there.
According to the new guidelines, all it will take is a 30-day trip from the country every five years.
New laws, passed by the National People’s Congress Standing Committee (NPCSC) on August 31, were set to take effect from the beginning of next year.
Under them, Hong Kong residents will be regarded as “tax residents” in mainland China — and therefore required to pay tax there on any earnings elsewhere the world – if they have a home, or spend more than 183 days a year, on the mainland. Having a home means “living habitually in [mainland] China due to household registration, family, economic interests”, according to the proposed guidelines, which did not elaborate.
But Hongkongers can avoid paying the extra duty by leaving the country for more than 30 days every five years, according to the 48 implementation guidelines on the amended law released on Saturday, which have been put forward for public consultation until November 4. The option is not available to anyone who owns a home or raises a family there.
There have been calls for more details over which Hongkongers meet the criteria.
Peter Kung Wing-tak, a Hong Kong member of the country’s top political advisory body, the Chinese People’s Political Consultative Conference (CPPCC), said the authorities should further clarify the definition of “habitual residence”.
“The three elements – household registration, family, and economic interests – are separated by serial commas in the article, without saying ‘and’ or ‘or’,” Kung said.
“If the punctuation means ‘and’, many Hongkongers can be relieved because they do not adopt mainland citizenship.
“But if fulfilling one of the three criteria will make one’s global income taxable, those who take their family up north for work will bear the brunt.”
For those who do not maintain a “habitual residence” across the border, the guideline said they can still be taxed on their global income from the sixth consecutive year they live on the mainland, if they have spent 183 days there each year and never left the mainland for more than 30 days in one go.
Otherwise, they will only be taxed on their mainland income and only required to report their other earnings for mainland authorities’ records, according to the proposed guidelines.
The tax rates for annual comprehensive income range from 3 per cent for the first 36,000 yuan (HK$41,363) to 45 per cent for anything exceeding 960,000 yuan (HK$1.1 million).
Louis Lam, a global mobility services partner at accounting firm PwC, said the 30-day tax break was “easier to implement but less flexible” than the existing rule, which provides another option of taking multiple trips from the country of 90 days in total.
Yet for both Lam and Kung, the calculation of consecutive residence was also unclear.
“Under the existing rules, one’s consecutive residence can be reset to zero if, for example, in the sixth calendar year, one stays for fewer than 90 days on the mainland,” Lam said. “It remains unclear if mainland authorities will retain this rule.”
Kung, who is also a senior adviser to KPMG China and specialises in mainland tax, urged Hong Kong officials to strive for more tax favours for Hongkongers by working with their mainland counterparts to update a treaty to avoid double taxation.
A spokesman for the Financial Services and the Treasury Bureau said the government had been in touch with mainland authorities about Hongkongers’ tax concerns. “We will continue to follow up the matter with the Ministry of Finance and the State Administration of Tax,” he said.