Expatriate Executive: Hong Kong

Summary of local taxation situation

Tax levied on income, known as 'salaries' tax is based on the territorial principle and applies to income "arising in or derived from a Hong Kong employment". Some types of income attract reduced or nil taxation. For example:

• Income paid in Hong Kong but which relates to services rendered outside the islands is exempt from salaries tax if the fiscal authorities are satisfied that tax has already been paid on that income in a foreign jurisdiction.
  
• An individual with Hong Kong source employment who works abroad but renders services in Hong Kong for less than 60 days in any tax year is exempt from salaries tax in the jurisdiction.
  
• An individual with Hong Kong source employment who works abroad but renders services in Hong Kong for more than 60 days in any tax year is assessed on the proportion of his total income that the number of days worked in Hong Kong bears to 365.
  
• The Hong Kong based employee of a non resident corporation Salaries tax is not payable on that proportion of income earned in relation to work done outside Hong Kong by such an individual on a contract governed by the laws of a foreign jurisdiction, where the employee is paid outside Hong Kong.

Non-employment source income such as share dividends and capital gains realized on the sale of shares are not taxable in the territory. Tax rates are applied after deduction of various allowances.

Social insurance payments in Hong Kong are in the nature of a private arrangement. However, in 2000 the Government passed the Mandatory Provident Fund Ordinance. As from 1st December 2000 all employees and self employed individuals earning more than HK$4,000 per month had to contribute a minimum of 5% of their salary up to maximum of HK$20,000 per month.

Estate duty in Hong Kong traditionally applied only to assets situated in Hong Kong, such as bank accounts, shares registered in the territory, and real property. The tax applied to estates valued at over US$1m and rose to a maximum of 15% on estates over $1.35m.

However, the Revenue (Abolition of Estate Duty) Ordinance 2005 ["the Ordinance"] came into effect on 11 February 2006.

The new legislation meant that no estate duty affidavits and accounts need to be filed and no estate duty clearance papers are needed for the application for a grant of representation in respect of deaths occurring on or after that date. The estate duty chargeable in respect of estates of persons dying on or after 15 July 2005 and before 11 February 2006 ("transitional estates") with the principal value exceeding $7.5 million was reduced to a nominal amount of $100.

There is a tax on the imputed rental value of real property in Hong Kong, payable regardless of residence status. There are also stamp duties on most types of transaction.

NB: Hong Kong tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is advisable.

Offshore Investment Opportunities

It is clear from the above that an resident expatriate working in or from Hong Kong is in a good position to acquire and maintain offshore assets, including assets in Hong Kong.

In choosing between various types of offshore asset for investment purposes, the main consideration for a Hong Kong-based expatriate will be his or her intended residential plans following departure from Hong Kong. If the expatriate plans to move on to another offshore jurisdiction, then investment choices will not be much constrained, but if the plan is to return to a high-tax jurisdiction, then it is vital to study the anti-avoidance legislation of that jurisdiction before acquiring offshore assets. Some jurisdictions tax offshore assets more severely than domestic assets and 'look through' trust arrangements, while others accept trust assets as being outwith the tax net.

This DIY guide can be used to explore high-tax country tax regimes for residents by specifying 'high-tax country name' and 'high-tax country resident intending to stay put'.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 35 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.