The rise of remote working has broadened the potential talent pool for Hong Kong businesses, but may also create tax issues.
At the same time, reform of the income tax system in the Greater Bay Area (GBA) is making the region more attractive for companies and individuals. At a Chamber webinar on 11 September, two experts from KPMG China shared their insights on the impact of these changes.
Murray Sarelius, Partner and Head of National People Services, shared the results of a KPMG survey that compared the outlook of CEOs at the beginning of 2020 with the current situation. One of the most notable changes is that issues around talent have become a top priority.
“Interestingly, talent risk has gone from being about 10th on the list of risks for CEOs to the top of the list,” Sarelius said.
Remote working has been a key trend amid the Covid-19 pandemic, and this seems set to continue, with 69% of CEOs surveyed planning to reduce office space. However, if employees are now working in different jurisdictions, this can create issues in areas including personal tax, work permits and social security.
The OECD has provided guidance that people who are stuck unexpectedly in another jurisdiction should not create a tax liability for the individual or company. However, many travel restrictions have now been lifted, but some people are choosing to remain overseas. “In such cases, the tax consequences need to be thought through.”
And as economies struggle to recover from the economic impact of Covid, there may be tighter enforcement of tax laws ahead: “Governments will be more interested in ensuring they collect all the tax they can, even if they don’t introduce new laws.”
The rise in remote working has also enabled companies to overhaul their workforce planning. “We can start rethinking what footprint we need in terms of office space, where we can recruit from, and is it opening up a broader pool of talent,” Sarelius said.
Hiring staff to work remotely saves relocation costs, and also avoids upheaval for workers and their families. Employees at large corporations could also transfer to other areas of the business without needing to relocate.
“This is an area that is moving quickly,” Sarelius said, “and Covid is accelerating these trends. HR teams should be paying attention.”
Daniel Hui, China Tax Partner, then updated members on the latest tax incentives in the GBA.
“In the Mainland there a 45% higher tax rate for individuals,” he explained. “In the GBA, the policy is to provide financial subsidies to individuals so their tax burden will be equivalent to Hong Kong.”
There are six categories of people eligible for the GBA preferential tax policies, including Hong Kong permanent residents. The list also includes urgently needed talent for each city: for Guangzhou the sectors include AI, biomedical and e-commerce, while Shenzhen includes mid-level employees at global companies.
The rules around tax incentives differ from city to city, and will continue to evolve, Hui said. “Stay alert to local policies and requirements,” Hui said. “Some incentives may be trial runs, and procedures may change.”
But while the GBA income tax policies are making it easier for companies to attract talent, there are some possible stumbling blocks, as Hui explained. Firstly, the tax must be paid in advance, and then refunded. The application period for the refund is also very short – less than two months – and there are no appeal procedures.
HR teams therefore should prepare the application and ensure that they have all the necessary documents in advance – these include the employment contract and also possibly proof of qualifications. Hui warned that some companies have missed out on the refund because they did not provide the correct documentation.
Beyond the GBA, Hainan is also offering similar tax incentives. “This means that both the GBA and Hainan are becoming more competitive compared to Hong Kong,” Hui said.