Is there double taxation in Hong Kong?
In the past, there have been occasions when employees have been sent out of Hong Kong to work on a contract basis. Many of these employees found that they were being taxed twice on their income, for instance in Hong Kong and their home country. In some cases, this double taxation resulted in tax liabilities amounting to more than 70% of their gross income.
To avoid such a situation from occurring again, an employee who is going overseas on secondment is given a one-time exemption from paying tax in his or her home country on income which has already been subject to taxes in Hong Kong. Such an arrangement is commonly known as 'double taxation relief'. The relevant provision under the law is Section 88F of the Inland Revenue Ordinance (IRO).
What is meant by 'double taxation relief'?
Section 88F of the IRO provides that where a person who has been seconded to work in a country other than Hong Kong has become liable to tax in his or her home country on income arising from such secondment, he or she should be entitled to claim double taxation relief so as to avoid further liability for tax payment. The section lays down out the criteria which must be satisfied before an employee may claim this relief and how it should be claimed.
To begin with, we shall look at what 'double taxation' means and why there might arise a situation of double taxation in the first place. Then we shall examine some practical examples showing how Section 88F works and how one may claim the relief.
In view of Section 88F, an employee who has been sent out from Hong Kong to work overseas on a contract basis may be exempted from tax liability in his or her home country if he or she meets certain conditions under the section. The employee should make a written request for double taxation relief within three years after the end of the year of assessment (i.e., 31 March each year). If you are unsure as to whether you qualify for double taxation relief, please contact us immediately so that we can assist you with your application and avoid any unnecessary loss arising from late filing.