Hong Kong Tax Residence Rule Questioned

By ExpatBriefing.com Editorial 13 February, 2012

Following a question in Hong Kong’s Legislative Council, the Secretary for Financial Services and the Treasury, Professor K C Chan, has provided numbers for the Hong Kong residents caught by the 183-day income tax threshold for working or staying within Mainland China.

It was already known that, since the signing of the arrangement between the Mainland and Hong Kong for the avoidance of double taxation in 2006, a number of Hong Kong residents who work and stay on the Mainland for more than 183 days during a year of assessment, though having paid their income tax on the Mainland, also have to pay taxes in Hong Kong as they also stay for more than 60 days and exercise employment in Hong Kong.

Chan was able to provide the information that, according to surveys conducted during the period of July to September in 2008, 2009 and 2010 respectively, some 218,200, 196,500 and 175,100 Hong Kong residents had worked in the Mainland during the previous 12 months.

Almost 90% of them usually worked in the Guangdong Province while being employed in the Mainland. From July to September in 2010, for example, most of the residents were engaged in the manufacturing sector, import/export trade and wholesale sector.

The Hong Kong Inland Revenue Department (IRD) has disclosed that the number of claims made by taxpayers, who rendered services outside Hong Kong (including the Mainland) and have paid tax in other jurisdictions similar to the Hong Kong salaries tax, was 6,243 and 10,731 for 2009-10 and 2010-11, respectively.

However, Chan confirmed that the use of the 183-day threshold, to determine a person's tax liabilities in the other contracting party, will remain. To compute the 183-day period, both the IRD and China’s State Administration of Taxation (SAT) follow the international norm by adopting the "days of physical presence" method.

Given that it is the international standard, whenever the IRD has raised with SAT the suggestion of relaxing the 183-day threshold, both parties, after discussions, consider that the 183-day threshold should not be changed.

Tags: Expatriates | Compliance | Tax | Tax Compliance | China | Offshore | Contractors | Professionals | Hong Kong | Individual Income Tax |


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