Hong Kong SAR
Treatment of business entities
A business can be conducted in Hong Kong SAR through the following principal forms:
- Company incorporated in Hong Kong SAR (either private or public via listing on the Stock Exchange of Hong Kong SAR).
- Branch of a foreign company.
- Representative or liaison office of a foreign company.
- Joint venture (can be set up either as a company or partnership).
- Sole proprietorship.
An entity in any of the above forms is subject to Hong Kong profits tax in the name of the entity itself on any profits arising in or derived from Hong Kong SAR from a trade, profession or business carried on in Hong Kong SAR.
Visa and work permit
Foreigners are generally required to obtain a work permit before taking employment in Hong Kong SAR.
Visa applications may be submitted to the nearest Chinese diplomatic and consular mission at the individual’s place of residence, or applications may be sent directly to the Hong Kong Immigration Department, or through the sponsor in Hong Kong SAR. The application must be supported by certain specified documents (e.g. resume, letter of contract of employment, letter from employer).
The Hong Kong Immigration Department will contact the individual and/or the sponsor for verification upon receiving the application.
Tax equalisation or reimbursement plans
A tax reimbursement program is usually provided by employers to expatriate employees to alleviate any tax increases which may be incurred as a result of an overseas assignment. A tax reimbursement program may either be a ‘tax protection’ or ‘tax equalisation’ plan.
A tax protection plan makes provision for the employee’s total tax liability not to exceed the amount they would have paid in their home country had the employee not been posted overseas. If the employee’s actual tax liabilities exceed the hypothetical home country tax, the employer reimburses the difference to the employee. If the actual tax liabilities are less than the hypothetical home country tax, the employee keeps the difference.
In contrast, a tax equalisation plan aims to maintain the employee’s tax burden as if they had remained in the home country. If the employee’s actual taxes are greater than they would have incurred in the home country, the employer reimburses the excess, and if the actual taxes are less, the employee is required to pay the difference to the employer.
The hypothetical home country tax must be calculated under either plan. The hypothetical tax is generally computed on the base salary and other remuneration as if the employee had remained in the home country.