Hong Kong company: Is a Salary Taxed in Hong Kong or not?

[banafinfodafuggiano]

Let's say I operate a Hong Kong company from Bulgaria, which has a 10% income tax.

I pay my self a salary or I simply invoice my own Hong Kong company $12,500 USD a month for my services and I pay the 10% on that salary in Bulgaria.

Does the Hong Kong company have to withold any tax at all in Hong Kong as payroll/payg to my personal name?
I read in some places it does, and it other places it does not, when the Hong Kong company and also the Director are both considered non-residents of Hong Kong.

In my case: 100% of services provided are outside HK, for non HK people, and the Director lives 100% outside of HK. And also the suppliers, 100% outside of HK.

I found this online, is this correct? does it mean there is NOT witholding personal tax on salaries from Hong Kong companies to their non-resident directors?
Do I have to be eligible and provide proof for this? is it automatic?

What i read here is very grey and nothing is clear lol.

"
The taxation laws regarding salaries paid by non-resident companies to individuals can vary depending on the jurisdiction. In Hong Kong, if you are a non-resident individual receiving a salary or fees for services performed outside of Hong Kong, you generally wouldn't be subject to salaries tax or withholding tax in Hong Kong.

However, if the services you are providing are performed within Hong Kong, then the company might have obligations regarding withholding taxes. Hong Kong follows a territorial-based tax system, which means that only income arising in or derived from Hong Kong is subject to tax there.

To determine whether a taxpayer’s employment is located outside Hong Kong (SAR), and thereforeregarded as being a non-Hong Kong (SAR)-located employment, the Inland Revenue Department willtake into account all of the relevant facts, with particular emphasis on:• where the contract of employment was negotiated and entered into and is enforceable, whether inHong Kong (SAR) or outside Hong Kong (SAR)• where the employer is resident, whether in Hong Kong (SAR) or outside Hong Kong (SAR)• where the employee’s remuneration is paid to them, whether in Hong Kong (SAR) or outside HongKong (SAR).(Different rules apply to determine the location of director’s fees and a pension.)Document Classification - KPMG Public 8There are a number of exemptions from salaries tax available to employees. In general, if all services withrespect to the employment are rendered outside Hong Kong (SAR), regardless of the status of theemployment (see earlier), the income will be fully exempt from tax"

 

[daniels27]

No you won't pay anything on salary tax.

The rules are actually pretty clear in Hong Kong and what your quote applies to foreign companies paying salaries to Hong Kong residents and do not apply to you. But it works as follows:

If you are Hong Kong resident, you pay tax on all your salary when employed in Hong Kong. Note that it works like in Switzerland for Swiss, i.e. you pay so taxes on full yourself after your get all your salary in full. There is no pay as you earn is something where the employer deducts anything.

Income from work performed outside Hong Kong for foreign employers is not even reportable.

If you have a contact with a foreign company that you signed outside Hong Kong, special rules apply. This is for the cases of expats etc. clearly not for locals who travel a bit etc. In this case you only pay tax on the part of the work performed on Hong Kong.

Long story short. If you are employed in Canada by an independent company and do consulting in 20 counties over the year and then move to Hong Kong, you pay only tax for the 30/365 days you sleep in Hong Kong and got the rest you are treated like a digital nomad and pay no tax as if you were not registered anywhere. It it a good options for digital nomads but requires an independent employer with a director outside Hong Kong as otherwise you have to register your own company in Hong Kong because it's US manages from there by which it would become a Hong Kong company for tax purposes.

 

[banafinfodafuggiano]

No you won't pay anything on salary tax.

The rules are actually pretty clear in Hong Kong and what your quote applies to foreign companies paying salaries to Hong Kong residents and do not apply to you. But it works as follows:

If you are Hong Kong resident, you pay tax on all your salary when employed in Hong Kong. Note that it works like in Switzerland for Swiss, i.e. you pay so taxes on full yourself after your get all your salary in full. There is no pay as you earn is something where the employer deducts anything.

Income from work performed outside Hong Kong for foreign employers is not even reportable.

If you have a contact with a foreign company that you signed outside Hong Kong, special rules apply. This is for the cases of expats etc. clearly not for locals who travel a bit etc. In this case you only pay tax on the part of the work performed on Hong Kong.

Long story short. If you are employed in Canada by an independent company and do consulting in 20 counties over the year and then move to Hong Kong, you pay only tax for the 30/365 days you sleep in Hong Kong and got the rest you are treated like a digital nomad and pay no tax as if you were not registered anywhere. It it a good options for digital nomads but requires an independent employer with a director outside Hong Kong as otherwise you have to register your own company in Hong Kong because it's US manages from there by which it would become a Hong Kong company for tax purposes.

So, if I am a EU citizen, who lives in Bulgaria, and operates a Hong Kong company (as the sole Director) and i pay myself a salary from this Hong Kong company, does the Hong Kong company have to with hold salary tax or other social contributions or even pension to Hong Kong authorities?

Note that I never visit Hong Kong, and I do not live in Hong Kong. The only thing that is in hong kong is the company structure.

 

[daniels27]

You only need to pay in Bulgaria.

 

[Marzio]

I wonder when somebody will tell him that by being the sole director and working from BG for his HK company will have to pay Bulgarian CIT.

 

[daniels27]

I wonder when somebody will tell him that by being the sole director and working from BG for his HK company will have to pay Bulgarian CIT.

I think I told him that already last week when he asked something else. He has been around here for quite and while and I am pretty confident is he aware of that and knows my usual reminder well by know.

Apart from very few exceptions, there is no point of incorporating elsewhere when residing in any EU/EFTA country. You will only pay more in the end.

 

[Roo]

How would this work if one opens a HK company living in Thailand and pays himself salary to a bank account outside of Thailand (not remitted) and most of the HK company income goes into salary or allowed expenses (travel/entertainment which I know rules are pretty relaxed there). Would that reduce the tax base to near zero legally in HK?
Could you guys also tell me what is the yearly cost of audit for a HK company?

 

[daniels27]

How would this work if one opens a HK company living in Thailand and pays himself salary to a bank account outside of Thailand (not remitted) and most of the HK company income goes into salary or allowed expenses (travel/entertainment which I know rules are pretty relaxed there). Would that reduce the tax base to near zero legally in HK?
Could you guys also tell me what is the yearly cost of audit for a HK company?

You could claim offshore and the tax base would be zero already.

Audit starts at 10k HKD, international setups at 13k HKD. If you have more than 100 transactions, the fees are higher.

 

[banafinfodafuggiano]

I wonder when somebody will tell him that by being the sole director and working from BG for his HK company will have to pay Bulgarian CIT.

There is no corporate Tax in Hong Kong for foreign sourced income, an exemption can potentially be applied in my case.

If not, then it's Bulgaria, do you really think they will care and know I manage a Hong Kong company instead of just being an employee?

I'm more worried about having to pay corrupt Tax officers for their share in Bulgaria, and the salary income tax in Hong Kong.

 

[Roo]

@banafinfodafuggiano since it's Bulgaria I don't think you will have issues with having a HK company. Is salary better than dividends though? If you get offshore tax exemption you will not need to reduce taxable amount by setting a salary.

 

[daniels27]

There is no corporate Tax in Hong Kong for foreign sourced income, an exemption can potentially be applied in my case.

Foreign sourced income = PASSIVE INCOME
Foreign income = ACTIVE INCOME

Two completely different things. You are talking about foreign income, which in exempt in Hong Kong.

If not, then it's Bulgaria, do you really think they will care and know I manage a Hong Kong company instead of just being an employee?

I am sometimes not sure if you are making fun of us. I believe, you sometimes hard to get. What you are trying to do it more than risky and I advise against us. I already mentioned many, many times that I DO NOT RECOMMEND Hong Kong offshore. Singapore is better. In Hong Kong, you are very, very likely to be denied the offshore exemption after one year as you cannot prove you paid tax in Bulgaria.

I'm more worried about having to pay corrupt Tax officers for their share in Bulgaria, and the salary income tax in Hong Kong.

Why would you go to Bulgaria? Just open a company in Singapore and travel between 3 countries. It will be the best setup for you.

@banafinfodafuggiano since it's Bulgaria I don't think you will have issues with having a HK company. Is salary better than dividends though? If you get offshore tax exemption you will not need to reduce taxable amount by setting a salary.

Yes, it is better as the Bulgarians won't know that he actually owns the company. He still needs to pay some income there. I am quite sure he will have a lot of profit and dividends will go somewhere, maybe the year he moves from Bulgaria to Romania and nobody wants the money at all.

 

[Marzio]

If not, then it's Bulgaria, do you really think they will care and know I manage a Hong Kong company instead of just being an employee?

I don't know, i will let you find out for us.

I am pretty confident is he aware of that and knows my usual reminder well by know.

 

[banafinfodafuggiano]

Foreign sourced income = PASSIVE INCOME
Foreign income = ACTIVE INCOME

Two completely different things. You are talking about foreign income, which in exempt in Hong Kong.


I am sometimes not sure if you are making fun of us. I believe, you sometimes hard to get. What you are trying to do it more than risky and I advise against us. I already mentioned many, many times that I DO NOT RECOMMEND Hong Kong offshore. Singapore is better. In Hong Kong, you are very, very likely to be denied the offshore exemption after one year as you cannot prove you paid tax in Bulgaria.


Why would you go to Bulgaria? Just open a company in Singapore and travel between 3 countries. It will be the best setup for you.


Yes, it is better as the Bulgarians won't know that he actually owns the company. He still needs to pay some income there. I am quite sure he will have a lot of profit and dividends will go somewhere, maybe the year he moves from Bulgaria to Romania and nobody wants the money at all.

Why is Singapore better? even if the offshore tax exemption is denied, it's still a 8.5% Tax plus 16.5% on anything above 2 million HKD. Singapore instead is straight 17% theft on all income except the first 100,000 SGD. Hong Kong sounds way cheaper as well to manage (without the tax exemption paper work). So what's so good about Singapore? I am curious to know honestly.

I was talking about Bulgaria because I need a solid place of residence plus tax certificates to show to Canada in case they ask, since i was previously a Canadian resident and I'm not travelling across the world (still while being a Canadian tax resident).


Anyway, even if I had to move to Dubai (which has a double tax treaty with HK) , my main doubt still remains, is there Tax on the salary for non-resident Directors of Hong Kong companies when all Foreign income is not remitted in Hong Kong? It looks like they explicitly make it hard to understand.


Can anyone confirm that what CHAT GPT is saying below is correct?
I guess HK authorities may want to see that you are paying income tax elsewhere in order to not pay payroll tax and pension payments in hong kong?

 

[daniels27]

I would never trust GPT. I would recommend you to read those

Hong Kong: Taxation of Director’s Fees – S.J. Grand

The taxation of director’s fee for a company incorporated offshore is a delicate issue, and it is vital to know under what jurisdiction directors are subject to tax.

sjgrand.cn

https://www.info.gov.hk/bor/en/decisions/docs/d12302.pdf

https://www.ird.gov.hk/eng/pdf/dipn10.pdf

I think it gives you a good understanding of the law and it's interpretation.

However, I understand your doubts and need for clarity. And here I am afraid that this will be difficult as you want to hide your company in Bulgaria.

That's why I am recommending Singapore where for can do offshore without them which you to pay tax elsewhere.

Another viable option would be to do Hong Kong but your take somebody else as director. You are turn only a subcontractor and invoice your fees from Bulgaria.

I think to find the best solution, can you maybe tell us your approximate total profit per year (including your own salary)? Aye you willing to pay personal income tax on the full amount in Bulgaria?

 

[banafinfodafuggiano]

I would never trust GPT. I would recommend you to read those

Hong Kong: Taxation of Director’s Fees – S.J. Grand

The taxation of director’s fee for a company incorporated offshore is a delicate issue, and it is vital to know under what jurisdiction directors are subject to tax.

sjgrand.cn

https://www.info.gov.hk/bor/en/decisions/docs/d12302.pdf

https://www.ird.gov.hk/eng/pdf/dipn10.pdf

I think it gives you a good understanding of the law and it's interpretation.

However, I understand your doubts and need for clarity. And here I am afraid that this will be difficult as you want to hide your company in Bulgaria.

That's why I am recommending Singapore where for can do offshore without them which you to pay tax elsewhere.

Another viable option would be to do Hong Kong but your take somebody else as director. You are turn only a subcontractor and invoice your fees from Bulgaria.

I think to find the best solution, can you maybe tell us your approximate total profit per year (including your own salary)? Aye you willing to pay personal income tax on the full amount in Bulgaria?

The problem here is, Singapore taxes non resident director salaries at 22%, and corporate tax is 17%.
Meaning that if I get dividends from the Singaporean company I will have to pay 17% corporate tax AND then 10% income tax in Bulgaria, which is going to be similar to the overall income tax I paid in Canada (30-33%).


My business makes between 300K and 450K USD in profit a year, some years make more and some years make less. I need a salary of around $100-150K USD a year (at least) to fund my lifestyle and invest the rest in appreciating assets. I don't want to sit on any cash. and I don't want to pay more than 15% tax in TOTAL.

 

[daniels27]

For Singapore, your profits will be tax exempt if you do not remit the money to Singapore. Hence, it is 0%, not 17%.

The director's fees are only taxable if the company is tax resident. By which we are back at the place of effective management discussion as you want to hide from Bulgaria.

IRAS | Taxable Income of Non-Resident Directors

Taxable income is income earned by non-resident directors that is subject to withholding tax. Taxable income includes both cash and non-cash payments.

www.iras.gov.sg

Yes, the director's fees declared by a company which is a tax resident in Singapore would still be subject to withholding tax.

The director's fees in Hong Kong are the same.

https://www.ird.gov.hk/eng/pdf/dipn10.pdf

Fees paid to persons who hold the office of director of a corporation whose central management and control are exercised in Hong Kong, are income arising in or derived from Hong Kong and chargeable to Salaries Tax under the basic charge of section 8(1) irrespective of where the person resides.

I once had a conversation with @GPT not the Chat in this case. He recommended me NOT to be the director of the company. I see now why. You can just be an external contractor and invoice the company for your services provided. Of course, they must be reasonable as otherwise, they won't be accepted by IRD/IRAS. But it eliminates all those issues with the director's salary and taxation. Again, in my opinion, the Singapore tax-free setup is the most promising. Of course, you spend about 4k in Singapore vs. 3k as in Hong Kong, but you won't have any audits etc. and can prepare your books yourself.

You on one side want to hide in Bulgaria but then have a complicated setup elsewhere. Tax in Bulgaria is 15% maximum for CIT+dividends and only 10% for personal income. Why not just pay 10% there and be happy? Your proposed setup only makes sense if you plan to stay less than 3 years in Bulgaria because at some point, they will find out that you managed a foreign company. Of course, I appreciate your effort and all and you are a good member here. But I am not sure if it makes sense to do all the setup just to save a part of the 10% tax in Bulgaria. Even Hong Kong will cost you 5k per year.

In your situation, I personally would either do Singapore, Guernsey or Gibraltar if you want a setup for more than 5 years. Then, you just go to Mongolia or Kazakhstan or Bulgaria and just declare some self employment income from WorldFirst, Wise or something. If you send the money from a Wise bank account (the one from your Singapore company) to your personal account and the sender shows as Wise, it is very obvious that they paid you, no? If you plan to stay more than 3 years in those countries, I would consider paying taxes there legally, but otherwise, yes I agree with you, Bulgaria and those will never find out.

Apart from that I am still very interested in finding out the real setup.

 

[banafinfodafuggiano]

For Singapore, your profits will be tax exempt if you do not remit the money to Singapore. Hence, it is 0%, not 17%.

The director's fees are only taxable if the company is tax resident. By which we are back at the place of effective management discussion as you want to hide from Bulgaria.

IRAS | Taxable Income of Non-Resident Directors

Taxable income is income earned by non-resident directors that is subject to withholding tax. Taxable income includes both cash and non-cash payments.

www.iras.gov.sg

The director's fees in Hong Kong are the same.

https://www.ird.gov.hk/eng/pdf/dipn10.pdf

I once had a conversation with @GPT not the Chat in this case. He recommended me NOT to be the director of the company. I see now why. You can just be an external contractor and invoice the company for your services provided. Of course, they must be reasonable as otherwise, they won't be accepted by IRD/IRAS. But it eliminates all those issues with the director's salary and taxation. Again, in my opinion, the Singapore tax-free setup is the most promising. Of course, you spend about 4k in Singapore vs. 3k as in Hong Kong, but you won't have any audits etc. and can prepare your books yourself.

You on one side want to hide in Bulgaria but then have a complicated setup elsewhere. Tax in Bulgaria is 15% maximum for CIT+dividends and only 10% for personal income. Why not just pay 10% there and be happy? Your proposed setup only makes sense if you plan to stay less than 3 years in Bulgaria because at some point, they will find out that you managed a foreign company. Of course, I appreciate your effort and all and you are a good member here. But I am not sure if it makes sense to do all the setup just to save a part of the 10% tax in Bulgaria. Even Hong Kong will cost you 5k per year.

In your situation, I personally would either do Singapore, Guernsey or Gibraltar if you want a setup for more than 5 years. Then, you just go to Mongolia or Kazakhstan or Bulgaria and just declare some self employment income from WorldFirst, Wise or something. If you send the money from a Wise bank account (the one from your Singapore company) to your personal account and the sender shows as Wise, it is very obvious that they paid you, no? If you plan to stay more than 3 years in those countries, I would consider paying taxes there legally, but otherwise, yes I agree with you, Bulgaria and those will never find out.

Apart from that I am still very interested in finding out the real setup.

Do you have a solid source that clearly states Singaporean company can definitely be 0% Tax if there is foreign income, the director is a non resident and the money are not remitted to Singapore? Does that mean the funds have to be in EMIs or banks outside of Singapore only?

 

[daniels27]

Do you have a solid source that clearly states Singaporean company can definitely be 0% Tax if there is foreign income, the director is a non resident and the money are not remitted to Singapore? Does that mean the funds have to be in EMIs or banks outside of Singapore only?

I replied you in the other thread. Please let's close this one here.

Hong Kong Ltd VS US Ltd VS UK Ltd

Yes, I've opened a Delaware corporate Wells Fargo account personally, as a non-US resident, in the last year. Did you do a personal visit and what was the requirements?

www.offshorecorptalk.com