Application for Full or Partial Exemption of Income under Salaries Tax
Whether or not you can apply for an exemption of some or all of your income from salaries tax depends on the source of your employment. This article provides information on the territorial concept of taxation used in Hong Kong and how different types of taxpayers are subject to it.
The Territorial Concept of Taxation
The charging of salaries tax in Hong Kong is based on the territorial concept. This means that all income arising in or derived from Hong Kong from an office, employment or any pension is assessable irrespective of whether tax on that income has been paid in other jurisdictions. The following sections describe how these conditions relate to most taxpayers.More on how to determine your source of employment
You are a director of a Hong Kong company if your position is defined by the relevant duties and responsibilities stipulated in the Companies Ordinance, and a director of an overseas company if you have similar duties and responsibilities as laid out by corresponding foreign legislation. A directorship is regarded as an office. In general, if you are a director of a company resident in Hong Kong, your full income derived from that office in Hong Kong is chargeable to salaries tax. This is not affected by the number of days during the year of assessment that you stayed in Hong Kong, and no exemptions or relief are available.
If you are an employee and your source of employment is in Hong Kong, your full income is chargeable to salaries tax even if some of your duties are performed outside of Hong Kong. However, you may claim exemption or relief on a year-by-year basis under certain circumstances.More on employee’s full or partial exemption of income under salaries tax
Hong Kong Residents Working across the Border in Mainland China
If during the relevant year of assessment, you work part of the year across the border in Mainland China, all of your income will be chargeable to salaries tax in Hong Kong. Your income can also be charged to Individual Income Tax in the Mainland, but exemptions are possible under certain circumstances.
Claiming an Exemption or Tax Credit
If you want to claim an exemption or tax credit for income that you earned from any employment or office in Mainland China, you must first report all of your income from both Hong Kong and the Mainland in part 4 of your tax return and claim tax credit or exemption in section 3 or 4 of the appendix to the tax return, as appropriate. Documents that support your claim must also be provided to the Inland Revenue Department.
Example – Working in Both Hong Kong and Mainland China
Employee A is the General Manager of ABC Company in Hong Kong, and also its subsidiary XYZ Company in Mainland China. In the 2015/16 year of assessment he earned $800,000 for the duties he performed in Hong Kong, and $200,000 for the duties he performed in Mainland China. Employee A has already paid Individual Income Tax in the Mainland on the $200,000 he earned there and he wants to claim income exemption for that amount under section 8(1A)(c) of the Inland Revenue Ordinance. He should report his full remuneration by completing part 4 of his Tax Return – Individuals (BIR60) and apply for partial exemption of income in section 4 of the Appendix to BIR60 as follows.
Appendix to BIR60
More on completion and filing of Return
You can find out more about exemptions and working in Mainland China in the following pamphlets issued by the Inland Revenue Department.Arrangement between the Mainland of China and the HKSAR for Avoidance of Double Taxation: A Guide for Personal Services (pdf file)Frequently asked questions about Double Taxation ReliefDepartmental Interpretation & Practice Notes No. 32: Arrangement between the Mainland of China and the HKSAR for the Avoidance of Double Taxation on Income (pdf file)
People Coming to Work in Hong Kong
If you are about to travel to Hong Kong for work or have already arrived, you should find out about your tax obligations. Salaries tax is payable on all income arising in or derived from an office or employment in Hong Kong, and the year of assessment runs from 1 April to 31 March.A Guide to Salaries Tax for People Coming to Work In Hong Kong (pdf file)
If your income is taxed outside Hong Kong, you should also determine whether you are liable for double taxation, and what you can do to reduce the burden.Double Taxation Relief