A. Location of Employment

A. Location of Employment

What is the taxation status of workers who partly render services in Hong Kong and partly in foreign countries?

The Hong Kong tax system is territorial-based. Salaries Tax is imposed on all income arising in or derived from Hong Kong from an office or employment or any pension regardless of whether tax on that income has been paid in other jurisdictions, subject to certain exemptions and tax credits.

When determining the location of employment, the following three factors are taken into account:

1. the location in which the employment agreement was negotiated, entered into, and is enforceable;
2. place of residence of the employer; and
3. the place of payment of the employee’s remuneration.

In general, an employment is considered to be non-Hong Kong employment if all three of the aforementioned factors take place outside of Hong Kong. The Inland Revenue Department may, however, consider additional considerations besides these three.

Hong Kong Employment

Unless all your services are delivered outside of Hong Kong (no account is taken of services performed in Hong Kong during visits of not more than a total of 60 days in a year of assessment), your entire income is normally subject to Salaries Tax even if part of your services are conducted outside of Hong Kong.

Non-Hong Kong Employment

If some or all of your services were rendered in Hong Kong and your stay in Hong Kong is in excess of 60 days in total, you are typically only assessed for Salaries Tax based on the income from the services you rendered in Hong Kong and generally according to the number of days you were here during the year of assessment.

Full and Partial Exemption of Income and Tax Credit

Employees who render services partially in Hong Kong and in a foreign jurisdiction can make an application for exemption on the form (B.I.R.60) “Tax Return –Individuals” and its Appendix, together with the supporting documents required (e.g. a copy of employment contract or any documents verifying tax payment in a foreign country, etc.). Full or partial exemption of income, or relief from tax, may be available to these persons if they satisfy one of the following conditions:

i) Only part of the income was arising in or derived from Hong Kong from a non-Hong Kong employment (i.e. under Section 8(1A)(a) of the Inland Revenue Ordinance)

This exemption is only applicable for employees having a non-Hong Kong employment (e.g. assigned to work in Hong Kong by overseas employers). As Salaries Tax is in this circumstance levied on income derived from services rendered in Hong Kong, income attributable to services rendered outside Hong Kong is exempt from tax. The amount of income exempted is generally computed by time-basis apportionment by reference to the number of days spent outside Hong Kong, unless the stay in Hong Kong does not exceed 60 days in total in a year of assessment.

For the purpose of counting the number of days in Hong Kong, the day of departure from Hong Kong and the day of arrival to Hong Kong together are counted as one day only.

Example

Thus, broadly speaking, if your annual income for a year of assessment was $365,000 and you were in Hong Kong for 100 days in that year, your assessable income would be $365,000 x 100/365 = $100,000.

ii) All services were rendered outside Hong Kong during the year under a Hong Kong or non-Hong Kong employment (i.e. under Section 8(1A)(b)(ii)of the Inland Revenue Ordinance)

This exemption is generally available to employees irrespective of the locality of the employment. Attending trainings, meetings or reporting in Hong Kong is regarded as services rendered in Hong Kong for the purpose of the exemption. You are exempt from Salaries Tax for a year of assessment if you rendered all your services outside Hong Kong in that year of assessment, unless you are a civil servant, or a crew member of a ship or an aircraft. Income from services rendered in Hong Kong during “visits” not exceeding a total of 60 days in the year is also excluded from Salaries Tax.

Visit means a short or temporary stay. Whether the nature of a trip to Hong Kong made by a Hong Kong resident is "visit" or not depends on the circumstances of each case. In general, if a Hong Kong resident has a work base in a foreign country and is required to render services there as a permanent employee, the person's occasional return to Hong Kong will be recognized as a "visit".

In deciding whether visits to Hong Kong exceed a total of 60 days, the "days of presence" are counted. A day is counted although you may be present in Hong Kong for part of the day only. Therefore, the day of departure from Hong Kong and the day of arrival to Hong Kong are counted as two days.

Example

iii) Part of the income has already been charged to the tax in Mainland China or other countries during the year 

a) Income Exemption for Hong Kong Employment under Section 8(1A)(c)of the Inland Revenue Ordinance

This exemption is generally only applicable for employees having a source of employment in Hong Kong. If you have paid tax of substantially the same nature as Hong Kong Salaries Tax to a territory outside Hong Kong in respect of income relating to services rendered by you in that territory, that part of the income which has already been subject to foreign tax will be exempt from Hong Kong Salaries Tax. Evidence of foreign tax payment is required.

For example, your annual income for a year of assessment was $300,000 and two-third of the income (i.e. $200,000) was attributable to services rendered by you in, say, Country A. If you had paid tax similar to Hong Kong Salaries Tax in Country A on the $200,000 income, your assessable income in Hong Kong would be $100,000 only.

b) Tax Credits under Section 50 of the Inland Revenue Ordinance 

When a Hong Kong tax resident has paid tax in a territory outside of Hong Kong that has concluded a comprehensive double taxation agreement or arrangement ("CDTA") with Hong Kong in regard to his or her income obtained from services provided in that territory (a "DTA territory"), tax credit may be granted. The foreign tax paid may be applied as a tax credit against Hong Kong tax due provided that proper documentation proof of payment is given.

For instance, before claiming any tax credit, you are chargeable to $100,000 in income tax on the relevant income in Country A attributed to services provided in that Country A and $450,000 in Salaries Tax on your entire income in Hong Kong (assuming that income is taxed at the standard rate). If Country A and Hong Kong have a CDTA in place, and you claim a tax credit for the income tax you paid in Country A, your Hong Kong Salaries Tax obligation will be reduced from $450,000 to $350,000.  

Income Exemption for Hong Kong Employment vs. Tax Credits

For a year of assessment up to 2017/2018, if a Hong Kong resident has paid Salaries Tax in a DTA territory in respect of income derived from services rendered in that DTA territory, he/she may either apply for tax exemption under section 8(1A)(c) in respect of that part of income already subject to Individual Income Tax in the Mainland or apply for a tax credit under section 50. Documentary evidence of the payment of Individual Income Tax is required.

From the year of assessment 2018/2019 and onwards, for income derived by a person from services provided in a DTA territory, section 8(1A)(c) is no longer applicable. Only a tax credit allowed under section 50 may be used to provide relief from double taxation on such income. For example, if you are a Hong Kong resident person (a person who is resident for tax purposes in Hong Kong) and have paid Individual Income Tax in the Mainland China in respect of your income derived from services rendered in the Mainland, you may claim for tax credit under section 50 of the Inland Revenue Ordinance and the Arrangement between the Mainland China and the HKSAR for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income.

You must fill out section 3 or section 4 of the Appendix to Tax Return - Individuals, depending on whether you want to claim a tax exemption under section 8(1A)(c) or relief under section 50.

To get more details about full or partial exemption of income relating to places of employment, you can also visit the Inland Revenue Department's webpage.