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Hong Kong economy

Push made for overseas income tax exemption for all Hongkongers in mainland China

City’s representatives in national legislature and top advisers to Beijing make the case for formal agreement to ensure Hongkongers won’t face double taxation on income from overseas by both mainland and city authorities

PUBLISHED : Monday, 01 October, 2018, 9:03pm
UPDATED : Tuesday, 02 October, 2018, 5:32pm

Hong Kong’s representatives in China’s national legislature are joining forces with the city’s top advisers to Beijing to push for an exemption from tax on overseas income for all Hongkongers living on the mainland who hold a home return permit.

Under an amended income tax law passed in August by the Chinese government, Hongkongers living north of the border for more than 183 days a year will be subject to global taxation by the mainland authority from the start of next year.

The move runs contrary to recent efforts by Beijing to woo residents of Hong Kong, Macau and Taiwan with a new smart identity card that offers greater access to social services.

Beijing has hinted that an exemption is on the way for Hongkongers living and working on the mainland. However, local delegates to the National People’s Congress (NPC) and members of the country’s top political advisory body, the Chinese People’s Political Consultative Conference (CPPCC), want the exemption extended to cover everyone with a home return permit.

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The permit is the mainland’s existing ID card that Hongkongers currently use for travel to the mainland. More than 90 per cent of Hongkongers hold one, as opposed to the new smart cards which are available only to those resident on the mainland for more than six months.

Tam Yiu-chung, the city’s sole representative to the NPC Standing Committee, China’s top legislative body, said on Monday: “Hong Kong’s delegates to the NPC will endorse the suggestion with joint signatures to Beijing in one or two days.”

Lobbying for the exemption has been led by Peter Kung Wing-tak, a Hong Kong member of the CPPCC.

A China tax expert and senior adviser to auditor KPMG, Kung said mainland authorities were likely to install a five-year grace period for non-mainlanders in implementation guidelines for the amended law, as seen in the old legislation. However, he argued a blanket exemption for home return permit holders would be a more simple and long-lasting solution.

“We suggest adding an article to the agreement on avoiding double taxation by the mainland and Hong Kong governments,” Kung said.

“It would in general state that all Hongkongers holding a valid home return permit should have their overseas income taxed by Hong Kong authorities only.”

Hongkongers working in mainland China face being taxed on their global income

As of August there were 6.9 million valid home return permits in circulation, covering 93 per cent of Hong Kong’s population, according to Yiu Si-wing, who represents the tourism sector in the city’s legislature. The permit serves as an important identity document during any stay on the mainland.

A spokesman for China’s State Administration of Taxation on Sunday cited the five-year grace period in the old law when asked what favours non-mainlanders might enjoy under the amended legislation.

“To maintain policy consistency, when the new personal income tax law is implemented, we will consider extending these favourable arrangements for non-mainlanders, including Hong Kong, Macau and Taiwan residents,” the spokesman said.

On Saturday Chinese Vice-Premier Han Zheng hinted to a Hong Kong delegation in Beijing that a tax exemption for Hongkongers working on the mainland would be rolled out “very soon”.

The new law requires Hong Kong residents who stay or earn their main income on the mainland for more than 183 days a year to pay tax on any other earnings around the world.

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Under the implementation guidelines issued for the legislation, non-mainlanders who have lived across the border for five “full years” in a row should be subject to global taxation by mainland authorities starting from the sixth “full year” of residence.

The definition of a “full year” in the old law was a year with temporary absences of no more than 30 days at a time or 90 days collectively.

In the new law the definition of a “full year” is only the 183 days.

Kung said: “We believe all the ‘full years’ in the five-year grace period will now be defined by the 183 days rule.

“But this means that even if the grace period is kept, Hongkongers who regularly live on the mainland will some day be taxed on their overseas income.”

But Kung assured Hongkongers that most working across the border would not be seriously affected by the new law because of an agreement between the two sides on double taxation.

That deal says Hongkongers whose permanent home or major family members are still in the city should only be taxed by Hong Kong authorities.

But at least four types of people could still be at risk, Kung said. These included people with a permanent home and a family on the mainland, unmarried people who work on the mainland and don’t own a flat in Hong Kong, retirees living on the mainland, and employees in Hong Kong who return to homes across the border every day.

“Their income from share dividends, deposit interest, home sales and lottery winnings in Hong Kong could be subject to a 20 per cent tax on the mainland because the Hong Kong government doesn’t tax those items,” Kung said.

Call to give Hongkongers overseas income tax exemption while working in mainland China

Both he and Tam suggested a waiver for all home return permit holders would be the best solution, considering the scope and simplicity of application.

“The home return permit is owned by more people,” Tam said, comparing it with the ID recently rolled out by the mainland.

The new smart identity card promises access to 18 public and social services on a par with local residents.

Governments on both sides agreed to actively explore ways to address the issue and to discuss the arrangements in details, said a spokeswoman for the Financial Services and Treasury Bureau in Hong Kong.

“The Financial Secretary called on the Commissioner of the State Administration of Taxation in mid-September in Beijing to exchange views,” the spokeswoman said. “We will continue to follow up the matter with the Ministry of Finance and the State Administration of Taxation.”