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Having the freedom to work from anywhere in the world is incredibly enticing. And digital nomads enjoy this freedom to the fullest.
Thanks to the internet and technology, they can be termed as people who work from a remote location anywhere in the world.
One of the key concerns that one has as such a remote worker is the tax treatment of their income.
Since the person may be working out of various countries and each country has its own tax regulations, figuring out what tax rates apply to such an individual can be challenging. This is also the case with Hong Kong, considered one of the Best countries to start a business for digital nomads.
In this blog post, you will learn everything about digital nomad taxes in Hong Kong.
What do digital nomads do?
Digital nomads are essentially remote workers. They are not bound by any location and travel freely while working.
They may be self-employed or employed by an organization. However, they cannot be pigeonholed into one specific task as they work in different industries in various capacities.
Here are some of the popular sectors that have a vast number of such remote workers:
- Project management
- Software development
- Transcription and translation
- Recruiting and HR
What do taxes look like for digital nomads in Hong Kong?
Taxation laws are a critical concern for remote workers working in Hong Kong.
While Tax exemption in Hong Kong is one of the key reasons why people prefer working out of Hong Kong, can every digital remote worker also benefit from the same?
At the outset, note that taxes in Hong Kong are based on the territorial principle. This means that Hong Kong authorities can tax only such income earned in Hong Kong. But there are no specific digital nomad taxes levied by authorities.
Here’s a break up of the various applicable taxes:
Any individual who earns income from a Hong Kong office by virtue of Hong Kong employment or due to services rendered in Hong Kong through visits of more than 60 days in any tax year is liable to pay Hong Kong salaries tax.
|Net Chargeable Income||Progressive Rates|
|On the First HKD 50,000||2%|
|On the Next HKD 50,000||6%|
|On the Next HKD 50,000||10%|
|On the Next HKD 50,000||14%|
|On the Remainder||17%|
Source: Tax Rates of Salaries Tax & Personal Assessment
The tax is levied progressively on the net taxable income post deductions and allowances. The tax rate is as per the tax slab, begins at 2%, and is capped at 17%.
However, if the tax you need to pay basis of your net chargeable income is more than the tax charged at a standard rate of 15% on your net total income, then you need to pay tax at 15%.
Your chargeable income is calculated based on the various types of income you need to report through your tax return. This includes:
- Salary and wages
- Allowances and fringe benefits
- Share options
Your residence or citizenship has no relevance when deciding liability for paying Hong Kong salaries tax. Any income earned locally by nomadic workers who stay less than 60 days is exempt from payment of salaries tax.
As per the Inland Revenue Department, any employment qualifies as non-Hong Kong employment only when the following three conditions are met:
- The employment contract was negotiated and entered into and is enforceable outside Hong Kong;
- The employer is not a resident of Hong Kong; and
- The employee’s salary is paid outside Hong Kong.
Unless all conditions are met, the employment will likely qualify as Hong Kong employment and attract relevant salary taxes.
Any person, including a corporation, partnership, or sole proprietorship, carrying on a business in Hong Kong has to pay tax on the profits made in Hong Kong, regardless of the person’s tax residence. Nomadic workers also fall within this unless they belong to jurisdictions with tax treaties with Hong Kong to protect against double taxation.
Hong Kong follows a two-tiered profits tax rates regime. The tax rate is as follows:
|Not more than 2,000,000||8.25%|
Source: Tax Rates of Profits Tax
From January 2023, Hong Kong authorities have classified the following types of offshore income to be subject to profits tax if such income is received in Hong Kong SAR by a multinational enterprise, unless a few additional conditions are met:
- IP income
- Disposal gains from selling equity interests
Hong Kong tax legislation stipulates that any non-permanent resident who intends to purchase a residential property must bear the Buyer’s stamp duty and Ad Valorem stamp duty capped at 15% each.
However, once non-residents have resided in Hong Kong for at least seven years, they can apply for a refund.
Automatic exchange of information (AEOI)
It is also worth noting that Hong Kong is a signatory to the Automatic Exchange of Information agreement of OECD. As a result, Inland Revenue Department is obliged to report information of all digital nomads back to the tax authorities of their country of residence.
As of 2022, Hong Kong authorities have an information exchange relationship with 74 countires through bilateral or multilateral competent authority agreements.
If you have not been declaring your income and paying taxes in your country of residence and want to use Hong Kong to escape your tax liability, you can get in trouble.
How can digital nomads benefit from the ‘Tax haven’?
While there is no international tax law for a nomadic worker, they can’t escape the tax burden entirely. However, tax havens can help reduce the tax liability of nomadic workers to some extent:
For starters, nomadic workers can take advantage of the flexible taxation laws of tax havens by becoming a non-resident in their home country and demonstrating that they have permanently cut off ties. Some of the benefits include:
- Exemption from profits tax in case of offshore income generated by a company incorporated in Hong Kong;
- No capital exchange control regulations which promote free repatriation of income;
Setting up a business in a tax haven can also help nomadic workers save on taxes, provided the business operations are carried out elsewhere. For example, there are no withholding taxes on any interest and dividends earned from shareholding, investments, and deposits;
If you are a remote worker in search of a destination with an efficient tax regime, Hong Kong is an excellent destination you can consider. But remember that simply becoming a digital nomad cannot help you forgo your tax liability. While you can reduce your taxes or become tax-neutral, escaping tax payments is punishable.
Are you searching for seasoned advice for structuring your operations to minimize your tax burden in Hong Kong? Get in touch with Air Corporate right away.
The experienced team at Air Corporate can guide you through the entire process and also help with Setting up a business account and company in Hong Kong.
Does Hong Kong offer any special digital nomad visas?
Hong Kong doesn’t offer any specific type of visa to a digital nomad.
However, one can apply for Investment as Entrepreneurs visa and the Quality Migrant Admission Scheme visa if they want to work as a digital nomad in Hong Kong.
Both these schemes have requirements you must fulfill to be eligible for the visa.
How much money should I have to become a digital nomad in Hong Kong?
It is difficult to zero in on a specific number as it depends entirely on your lifestyle and the type of work you want.
As a rule of thumb, you should have enough to live comfortably within your means.
I am a digital nomad. Do I need to be physically present in Hong Kong to set up a business?
As per Hong Kong laws, directors or shareholders don’t have to be physically present in Hong Kong when setting up an offshore company.
It is possible to complete the process remotely.
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