Hong Kong Taxation
Answer Q1:
Hong Kong being considered as a free economy can be considered to have extreme low tax imposed on both individuals and in business. In the case provided, it has been mentioned that Lisa is a Hong Kong resident but has been appointed as a senior sales Manager of a Spanish company. The company is currently operating in Hong Kong so Lisa is in charge for their Chinese operations. It can be noted that Lisa’s salary was given under HK$ currency. In this regard, since the company is currently operating in Hong Kong, the company has an obligation to Hong Kong government and economy and all of their employees. In Hong Kong, there is so called tax equalization policy in which Lisa can pay no more and no less tax for her work for the company.
Such policy has been designed for employees like Lisa as a neutral aspect in her compensation package. In which, she should bear tax burden equal to that which would have been borne had Lisa remained at home. As an employee, she is responsible during her assignment in the Spanish company for stay at home or hypothetical tax, which would be computed on the remuneration the employee would have earned and obtained if she continued to work in the Spanish company. In this regard, the tax can be withheld from the employee’ normal salary and is retained by her Spanish employer as a tax reserve. In this regard, under Hong Kong taxation policy, the company where Lisa is working would be responsible for paying all required home as well as host country taxes on the company income, which consists of taxes on expatriate benefits during the assignment or work contract. For various companies, employees like Lisa would not be tax equalized on income from non-company sources, like the investment income from the host country or from home, which indicated that the employee will remain fully liable for all actual global taxes payable on their personal income. Under the equalization policy of Hong Kong taxation regulation, any tax savings will go to the employer, however, any additional tax liability will be shouldered by Lisa’s employer.
On one hand, the employer of Lisa can also implement a tax protection policy instead of abiding the tax equalization policy. Under this approach, Lisa’s total income tax burden for Hong Kong and Spanish taxation policy is limited or restricted to the hypothetical home country’s income tax, or Hong Kong’s income tax. In instances that the actual home and host nations’ income tax are less than the Home country’s hypothetical income tax, like in this case, if Spanish income tax is less than Hong Kong’s income tax, the employee (Lisa) could keep the benefit.
Based on this case, Hong Kong taxation policy is able to provide equality on tax for employees, like in the case of Lisa, she should not worry too much on her tax on Hong Kong, because Hong Kong have been able to set up a taxation policy that can easily be shouldered by both the employee and the employer.
Answer Q2
In Hong Kong, issues of job descriptions when it comes to payment of tax do not have differences. Accordingly, employees in Hong Kong are considered as individual taxpayers who receive an income from an office or employment, regardless of whether the owner of the company is a Hong Kong resident or not, like in this case, Lisa is working for Spanish Company. Hong Kong employees are being charged with salaries tax by filing up the Inland Revenue Department (IRD). Like any other employees in Hong Kong, Lisa should pay salaries tax on her income even if she is a sales manager or sales director. The computation for this may vary, depending on how much Lisa is receiving as a sales director or sales manager from her Spanish company. Lisa must receive a tax return from IRD and she must complete and submit it before or during the due date even if she has no income which can be charged to salaries tax.
In order to compute the value of her tax, Lisa should need to report her income on the tax returns which are the B.I.R. 60 for individuals. Accordingly, any salary, wages as an employee or manager or even her director’s fees that she earn are still chargeable with salaries tax. In addition, the gross amounts prior to the deduction of her contributions to a recognized occupational retirement system or mandatory provident fund scheme should also be included on her report.
In this regard, even if Lisa is working under Spanish company, all the payment that she received from her employer are taxable, regardless of when the payment occurred and whether the amount paid was in line with the terms of employment or in excess of which.
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