Do I pay salaries tax if I work outside Hong Kong

Do I Pay Salaries Tax If I Work Outside Hong Kong

Hong Kong does not tax salaries for work performed entirely outside the city. This income is not of Hong Kong source under the territorial source principle. The Inland Revenue Department (IRD) charges salaries tax only on income arising in or derived from Hong Kong from an office, employment or pension. Where you physically perform the work is the critical factor, not your employer's location or where the salary is paid.

Hong Kong Salaries Tax Overseas Income

The territorial source principle governs all Hong Kong direct taxes, including salaries tax. Under Departmental Interpretation and Practice Note 21 (DIPN 21), the IRD determines the source of employment income by reference to the place where the services are rendered. Perform all your duties outside Hong Kong and the income is not of Hong Kong source. It is not chargeable to salaries tax. This applies regardless of whether your employer is a Hong Kong company, whether the salary is paid into a Hong Kong bank account, or whether you hold a Hong Kong employment contract.

Salaries Tax Non-Hong Kong Work

Split your working time between Hong Kong and overseas and the IRD apportions the income. Only the portion attributable to services performed in Hong Kong is taxable. The IRD generally uses a time apportionment basis, comparing the number of days worked in Hong Kong against total working days in the year of assessment. You must be able to demonstrate the overseas work location with records such as travel itineraries, hotel bookings, client meeting notes and correspondence showing where services were performed.

Offshore Employment Income HK Tax

To claim that your employment income is not of Hong Kong source, you must satisfy the IRD that your entire employment is exercised outside Hong Kong. This is a factual test. The IRD examines factors including where your employment contract is negotiated and executed, where your employer is resident, where your salary is paid, and most importantly, where your duties are actually performed. A mere contractual term stating that employment is outside Hong Kong is not sufficient. The IRD looks at the substance of your working arrangements.

Territorial Source Salaries Tax HK

The territorial source principle means that Hong Kong does not tax income sourced outside its territory, even if the recipient is a Hong Kong resident. For salaries tax, the source is the place of employment: the location where the employee renders services. Work remotely for a Hong Kong employer while living in another jurisdiction and your income is generally sourced where you physically perform the work. However, the IRD may challenge claims where the employer has no substantive operations outside Hong Kong and the employee's overseas presence is minimal or not genuinely required by the employment.

Employer's Reporting Obligations

Your employer must still report your remuneration to the IRD on Form BIR56A and Form IR56B, even if you claim the income is not taxable. The employer's return covers all employees, regardless of where they work. If you believe your income is not of Hong Kong source, discuss this with your employer so that the employer's return accurately reflects the position. You must also file your own individual tax return on Form BIR60 and claim the exemption, providing supporting evidence of your overseas work location.

Proving the Overseas Work Location

The IRD may issue a tax assessment based on the employer's return and then consider your claim for exemption. You must provide documentary evidence. This includes a detailed schedule of days worked in and outside Hong Kong, travel records, employment contract, and any correspondence or reports demonstrating that your duties were performed overseas. The IRD may also request a letter from your employer confirming the overseas nature of your employment. If the IRD accepts your claim, it will issue a nil assessment or exclude the overseas portion from the assessable income.

Year of Assessment and Filing

You report your employment income for each year of assessment, which runs from 1 April to 31 March. Work entirely outside Hong Kong for a full year of assessment and you should still file a tax return and claim the exemption. The IRD may issue a notice of assessment showing nil tax payable. Do not file and the IRD may issue an estimated assessment based on the employer's return. You must then object to this by filing a return and providing evidence of your overseas work.

Non-Resident Status

Work outside Hong Kong for the entire year of assessment and have no Hong Kong-sourced income, and you are not a taxpayer for salaries tax purposes. You do not need to apply for non-resident status; the IRD simply does not assess you. However, if you have other Hong Kong-sourced income, such as rental income from Hong Kong property or profits from a Hong Kong business, you may still be liable for property tax or profits tax respectively.