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Salaries tax is imposed on all income arising in or derived from Hong Kong from an office, employment or any pension. Here you can learn more about the territorial concept of taxation, how income earned outside Hong Kong is taxed, the exemptions you could be eligible for and the types of documents you should keep to support your claim for exemption or tax relief.

Source of Employment

The Hong Kong tax system is based on the territorial concept. Salaries tax is imposed on all income arising in or derived from Hong Kong from an office or employment or any pension irrespective of whether tax on that income has been paid in other jurisdictions.

In determining the source of employment, the following three factors are relevant:

  • the place where the contract of employment was negotiated and entered into, and is enforceable;
  • the employer’s place of residence; and
  • the place of payment of the employee’s remuneration.

In general, if all three factors take place outside Hong Kong, the employment is regarded as located outside Hong Kong. However, the Inland Revenue Department reserves the right to look beyond these factors in appropriate cases.

Further information can be obtained through the following link.

Hong Kong Employment

If your source of employment is Hong Kong, e.g. you are employed by a Hong Kong company to work in Hong Kong, your full income is chargeable to salaries tax even if part of your duties are performed outside Hong Kong. However, you may claim exemption of income or relief from tax under certain circumstances on a year-by-year basis.

Non-Hong Kong Employment

If your source of employment is outside Hong Kong, e.g. you are assigned to work in Hong Kong for a few years by your overseas employer and you have to perform part of your duties in other countries, you are only assessed on the income attributable to the services you rendered in Hong Kong, including leave pay attributable to such services, and generally according to the number of days you were in Hong Kong (day-in-day-out basis) in a year of assessment.

When calculating leave pay under these circumstances, leave days attributable to services rendered in Hong Kong are computed as follows:

Leave days attributable to services rendered in Hong Kong =

 

Total leave days x

Business days in Hong Kong


Total Business Days

Business days in Hong Kong + Business days outside Hong Kong + leave days = 365 or 366

Full or Partial Exemption of Income or Relief

You can apply for full or partial exemption of income or relief from tax when filing your Tax Return – Individuals (BIR60) and its Appendix if you satisfy one of the following conditions:

Only Part of Your Employment Income were sourced in Hong Kong (i.e. under section 8(1A)(a) of the Inland Revenue Ordinance)

This exemption only applies to employees whose source of employment is outside Hong Kong. As salaries tax in this case is only 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 with reference to the number of days spent outside Hong Kong.

When counting the number of days in Hong Kong, the day of departure from Hong Kong and the day of arrival in Hong Kong are counted together as a single day.

Example

Arrival in Hong Kong

Departure from Hong Kong

Number of days in Hong Kong

1 February

at 23:30

4 February

at 00:30

3

1 March

at 11:30

1 March

at 18:30

1/2

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

 

All Services Were Rendered Outside Hong Kong During the Year (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 their 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 only if you rendered all 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 tax.

A visit means a short or temporary stay. Whether the nature of a trip to Hong Kong made by a Hong Kong resident is a 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 recognised 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 even though you may be present in Hong Kong for only part of that day. Therefore, the day of departure from Hong Kong and the day of arrival in Hong Kong are counted as two days.

Example

Arrival in Hong Kong

Departure from Hong Kong

Number of days in Hong Kong

1 February

at 23:30

4 February

at 00:30

4

 

Part of Your Income Has Already Been Charged to Tax in Mainland China or Any Other Territory During the Year (i.e. under section 8(1A)(c) of the Inland Revenue Ordinance)

This exemption is generally only applicable to employees whose source of employment is in Hong Kong. If you have paid tax of substantially the same nature as Hong Kong salaries tax to a territory outside Hong Kong for income relating to services you rendered in that territory, that part of the income will be exempt from salaries tax under section 8(1A)(c) of the Inland Revenue Ordinance (“IRO”). Evidence of foreign tax payment is required.

Example

Your annual income for a year of assessment was $300,000 and two-thirds of the income ($200,000) was attributable to services you rendered in Country A.

If you had paid tax similar to Hong Kong salaries tax in Country A on the income of $200,000, your assessable income in Hong Kong would only be $100,000.

If you are a Hong Kong resident and provide services in both Mainland China and Hong Kong, the income derived from your Hong Kong employment will be fully assessable but you may apply for either tax exemption under section 8(1A)(c) for that part of your income already subject to Individual Income Tax in the Mainland or a tax credit under the Arrangement between the Mainland of China and the HKSAR for the Avoidance of Double Taxation on Income. Evidence of the payment of Individual Income Tax is required. In general, tax exemption under section 8(1A)(c) provides greater relief than would be provided by tax credit.

Application for Exemption of Income or Relief from Tax

Exemption or relief is only granted upon application with supporting documents. If you are seeking tax exemption or relief you must complete, as appropriate, Section 3 (Relief Claimed under Comprehensive Double Taxation Agreement(s) / Arrangement(s)) or Section 4 (Application for Full/Partial Exemption of Income included under Part 4.1 of BIR60) of the Appendix to Tax Return – Individuals (BIR60).

Supporting Documents

If you are claiming exemption or relief under section 8(1A)(c) of the IRO or a tax credit under Comprehensive Double Taxation Agreement(s) / Arrangement(s), you must submit evidence of tax payment such as your Mainland Individual Income Tax Return and tax receipts, and a schedule of your itinerary.

In processing the claim for either exemption or relief, you may be required to provide copies of the following documents:

  • employment contract
  • letter of assignment to Hong Kong (for expatriates coming to work in Hong Kong)
  • tax payment notices or receipts issued by tax authorities outside Hong Kong
  • passport or another travel document showing your movements into and outside Hong Kong in the relevant year of assessment
  • schedule of your movements into and outside Hong Kong in the relevant year of assessment (1/4/yyyy – 31/3/yyyy) in the following format:

 

Date of departure
from Hong Kong

Date of arrival
in Hong Kong

Places visited
(name of country/city)

Purpose
(e.g. business, vacation)

1.

 

 

 

 

2.

 

 

 

 

3.

 

 

 

 

4.

 

 

 

 

 

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Last revision date: May 2013

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