https:\/\/henrykwongtax.com\/newsletter\/inland-revenue-ordinance-section-15f-double-taxation-risk-on-mnc-with-research-development-rd-functions-in-hong-kong\/<\/a><\/p>\n\u00a0<\/p>\n
By setting up operations in Hong Kong to
\nenjoy the low tax rate, the group \/ company could certainly benefit from a
\nlower group effective tax rate to reduce the tax burden. <\/p>\n
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Employer obligations: <\/i><\/b><\/p>\n
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8.\u00a0\u00a0\u00a0\u00a0\u00a0
\n<\/b>Hong Kong employers have no obligation to withhold tax for employees<\/b><\/p>\n
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Unlike many other tax jurisdictions, Hong
\nKong employers in general do not have an obligation to withhold tax on behalf
\nof their employees when the remuneration is paid. The employees are under their
\nown obligation to settle their Hong Kong Salaries Tax position. <\/p>\n
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A withholding tax obligation only arises when
\nan employee will permanently leave Hong Kong. In such a case, the employer has
\nto notify the IRD at least one month before the expected date of departure. The
\nemployer is also required to temporarily withhold payment of salaries until
\nreceipt of the “letter of release” from the IRD. <\/p>\n
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9.\u00a0\u00a0\u00a0\u00a0\u00a0
\n<\/b>Employers have to report salaries paid to employees, even when they work
\noutside Hong Kong<\/b><\/p>\n
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Every April, employers are required to file an
\nEmployer’s Return (BIR56A and IR56B) with the IRD to report the remuneration
\npaid to its directors and staff, regardless of whether the work was carried out
\nin or outside Hong Kong. It is a common misconception that filing the
\nEmployer’s Return is not required if the employees work outside Hong Kong.<\/p>\n
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The mismatch between salary expenses incurred
\nby a corporation and the Employer’s Return is one of the catalysts that will
\ntrigger a field audit and investigation by the IRD. As such, employers should
\nalso report remuneration paid to both Hong Kong and non-Hong Kong employees. Employees
\nare under their own obligation to lodge a non-taxable offshore claim to the IRD
\nif they work outside Hong Kong.<\/p>\n
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Having said that, it is worthwhile for the
\nemployers to make a note in the IR56B that the employee did not perform his or
\nher job duties in Hong Kong. Meanwhile, all employment contracts should be well
\nstructured to avoid any challenge by the IRD. <\/p>\n
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Transfer pricing rule:<\/i><\/b><\/p>\n
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10.\u00a0
\n<\/b>Hong Kong already has its own transfer pricing rule<\/b><\/p>\n
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Large corporations in Hong Kong are now
\nrequired to file transfer pricing documentation in Hong Kong, which comprises
\nMaster File, Local File and Country-by-Country (CbC) reporting. Since the
\nimplementation of the transfer pricing rule on 13 July 2018, we are also seeing
\nan increased trend by the IRD to carry out transfer pricing audits on
\ntaxpayers. <\/p>\n
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Hong Kong follows the international threshold
\nfor CbC reporting. Multinational groups with consolidated revenue of EUR750
\nmillion (HK$6.8 billion) are required to file a CbC notification and report in
\nHong Kong. An important point to highlight is that, even though a multinational
\ngroup has already submitted a CbC report in another tax jurisdiction, they must
\nsubmit their CbC notification in Hong Kong, even when there is an information
\nexchange mechanism. <\/p>\n
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Below is the specific threshold for transfer pricing
\nMaster File and Local File in Hong Kong:<\/p>\n
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