IN DETAIL: TAXATION
Working from Home While Abroad: Is it Legal? COVID-19 is causing many Hong Kong employees to ask if they can work from ‘home’ for an extended period in an overseas country, in some cases because it is their home nation, or their family is based there. Here, we explore some potential legal issues and how to avoid the traps. – By Kathryn Weaver
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mployees with ‘Hong Kong employment’ (employment under which the contract is enforceable in Hong Kong, the employee is paid in Hong Kong and management and control of the employer is in Hong Kong, etc.) will generally remain subject to salaries tax in Hong Kong if they temporarily work outside of Hong Kong for part of the tax year. However, if they work outside of Hong Kong for the full tax year, then no salaries tax in Hong Kong will be levied. The host country may have taxing rights over the employment income the employee earns while physically working in that country. However, if there is a double taxation treaty (DTT) between Hong Kong and the host country, the employee will be subject to income tax of the host country only if certain conditions are satisfied. Hong Kong has a DTT with 65 jurisdictions, including its top trading partners – the UK, Japan and France.
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The DTTs Hong Kong has entered into typically grant taxing rights on employment income to a host country when an employee is present in that host country for 183 days in any 12-month period. In practice, this means that a short stay abroad in many locations is not going to result in the employee becoming liable for income tax in the host country. If the employee does become subject to tax in the host country, the same income may still be subject to tax in Hong Kong. In that situation, double tax relief will be available in accordance with the provisions of the DTT. Employers should be aware that they may have salary withholding obligations in some jurisdictions.
Pensions implications Where mandatory contributions are being made to a mandatory provident fund (MPF) in Hong Kong, arrangement for the employee to work abroad will not affect the contributing obligations
