Hong Kong employees who are stationed and work on the mainland will see a big tax relief from June when the State Administration of Taxation, the mainland's tax authority, implements new rules to modify the existing taxation calculation method in proportion to the number of days they work on the mainland, according to PricewaterhouseCoopers.
The mainland tax authority in a new notice issued in late April initiated a special tax treatment for Hong Kong and Macao residents, which allows them to pay salary and bonus tax based on time apportionment of their stay on the mainland.
Hong Kong employees who work across the boundary have to pay full income tax on the mainland when seconded to work full time there these days.
At the same time, they are also subjected to salaries tax in Hong Kong as long as they spend more than 60 days in the city in a year — including the time they are back to report for work or visiting their families.
The special tax treatment on the mainland, which will take effect from June 1, 2012, will effectively help Hong Kong and Macao employees pay reduced tax unlike before when taxation was calculated based on a full month even if they worked for only a couple of days in that month.
Effective June 1, the tax payers will only pay the monthly salary tax on the mainland based on the length of time they stay on the mainland — which is calculated by dividing the number of days they are physically present on the mainland to the number of calendar days in each month.
Taxation on their one-off annual bonus on the mainland will also be subjected to the proportion of the actual number of days of stay on the mainland over the whole year. Before this, the annual bonus tax was calculated based on the full year.
Jacky Chu, a partner on international assignment services of PwC, said the firm does not have the exact data on the number of Hong Kong cross-border employees currently affected by the double taxation under the current practice.
But the phenomenon is common these days with business activities strengthened between the borders and employees migrating frequently.
"As some Hong Kong companies these days also cover part of the taxes charged on the mainland for their employees, the new policy will assist these companies to reduce the assignment labor cost to the mainland in the future," said Chu.
However, the new tax arrangement is only applicable when these employees are hired by a Hong Kong or Macao company. In other words, if the Hong Kong and Macao tax resident employees are employed by a mainland company and work full time on the mainland, the special treatment should not be applicable, Chu added.
Since 1995, the city has been seeking to negotiate with the mainland to clarify the tax rules and ease the burden for the growing number of companies based in Hong Kong that are doing business on the mainland.
In 1998 and 2006, the special administrative region had signed two arrangements with the mainland to avoid certain double taxation issues on these Hong Kong residents who are employed across the borders.
