Hong Kong: Updated Guidance on Tax Residence of Individuals and Income from Employment during COVID-19 Pandemic

In the previous episode, we have discussed how the restricted international travel due to the COVID-19 pandemic may affect the tax positions of companies, and the guidance provided by the Hong Kong Inland Revenue Department (“IRD”) on its approach to deal with corporate tax issues relating to tax residency, permanent establishment and transfer pricing.  The restricted international travel due to COVID-19, apart from affecting companies, may also give rise to tax impacts for individuals.  In this episode, we will discuss the guidance issued by the IRD on its general approach to handle the individual tax issues for cases which have been affected by the COVID-19 pandemic.

Tax Residence of Individuals

An individual who previously travel frequently may be prevented from travelling to other jurisdictions to carry out duties or returning to his home jurisdiction as a result of travel restrictions or other public health measures imposed under the pandemic; therefore, the individual has to remain in the host jurisdiction much longer than usual.  The IRD expressed the view that such an individual would generally unlikely become a resident of the host jurisdiction, and even if he did, he would normally remain a resident of the home jurisdiction under the tie-breaker rules in the relevant treaty.  Nevertheless, the IRD reminded taxpayers that the above approach should be temporary, and the IRD may take a different approach after the public health restrictions are lifted.

Income from Employment

The IRD’s approach in relation to income from employment is generally in line with the Updated Guidance on Tax Treaties and the Impact of the COVID-19 Pandemic.  Where an employee resident in another jurisdiction and exercising an employment in Hong Kong is stranded in Hong Kong because of the COVID-19 pandemic; and would otherwise have left Hong Kong and qualified for exemption from salaries tax in Hong Kong under Article 15 of the Commentary on the Model Tax Convention on Income and on Capital, the additional days spent by the employee in Hong Kong under such circumstances would be disregarded for the purposes of the 183-day test in Article 15(2)(a).

Kindly note that the above approach only covers situations where the employee is prevented from travelling due to quarantine requirements, certified sickness caused by COVID-19, travel ban imposed by government and cancellation of flights necessitated by government public health measures, and does not cover the situation where the employee, like members of the public, is simply urged to avoid non-essential travel.

The IRD further mentioned that it has no discretion to exclude the days of physical presence in Hong Kong for the purposes of counting days under section 8(1B) of the Inland Revenue Ordinance at the domestic level.

If you have any queries on how the restricted international travel due to the COVID-19 pandemic may affect your tax position , please feel free to contact us.

Marzio Morgante
Chartered Accountant, LL.M.
Managing Partner
Tel: (852) 3102 1995

Kei Lam
Senior Tax Manager
Tel: (852) 3102 1995

Rooms 501-2, Wilson House
19-27 Wyndham Street
Central, Hong Kong

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