How to pay tax when employed abroad? 3 Big Questions Revealing the Taxes/Entitlements of Remote Work

1.）Whether or not to pay tax depends on where the employer is registered：

2.）Hong Kong does not enjoy ‘double taxation relief’？

3.）How is MPF calculated for employees who are sent overseas？

Covid-19 has fueled a work-from-home, teleworking model. The question is, do employees in Hong Kong need to pay tax for working for non-local employers? Due to the general trend of global human resources moving out, many technology development positions are inclined to remote work. How to clarify the tax rights and interests of these situations?

1.）Whether or not to pay tax depends on where the employer is registered：

In many cases, the employee is in Hong Kong, but the employer is overseas, they thought they were earning salary from other places, but it turns out that I have to pay taxes in some cases?

If the company belongs to a company registered in a foreign country, such as the United Kingdom, the United States, etc., it is popular to tax overseas remote employees. In this way, employees will be limited to the general tax system of these lands, and then determine the tax issue according to the local tax law.

In addition, since the employment contract is formulated by a British and American company, whether the bank account is a local transfer or an overseas transfer, the tax is calculated according to the local tax system. In other words, the employee in this case needs to file a tax return directly to the government. However, if the salary is received by a bank in Hong Kong, it is also obliged to file a tax return to the Hong Kong government.

However, if a non-local employer registers a company in Hong Kong (that is, no foreign company is involved), then obviously the tax system depends on the local situation, which is basically the same as that of ordinary wage earners, and only needs to deal with local tax.

2.）Does Hong Kong enjoy “Double Taxation Relief”?

Double taxation arises when two or more tax jurisdictions have jurisdiction over and tax the same income or profit of a taxpayer at the same time. If you have any questions, it is best to seek advice from a lawyer and accountant.

In Hong Kong, ordinary employees are entitled to the above-mentioned relief. Due to the double taxation relief agreements signed between Hong Kong and 55 countries/regions, the tax paid outside the country can be deducted. The countries/regions that have signed the agreement include Canada, the United Kingdom, France, Indonesia, Japan, South Korea, the Mainland, etc.

Among them, it should be noted that the double taxation in the following areas has not been exempted：

USA;

Germany;

Australia etc.

3.）How is MPF calculated for employees who are dispatched overseas?

Generally, if he is hired by a company registered in Hong Kong and is sent to work overseas for a period of time, his employer should continue to make contributions to him in accordance with the MPF Ordinance. In short, since he still has ties to Hong Kong, he is an employee covered by the MPF system.

Similarly, if an employee is hired by a non-local company and needs to work in a non-local company, even a branch of a Hong Kong company in a non-local location is not protected by the Ordinance.

Last important point，In some countries, “withdrawal of MPF” is regarded as pension income. Just like Canada, the country’s policy will treat residents who live in the region as tax residents, and may be subject to income tax of up to 50% when withdrawing MPF funds. Therefore, he may want to consider other options such as gradually withdrawing the amount, deferring tax payments, etc.

The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.