Criteria for Determining Tax Residency in Hong Kong
According to Section 13 of the Inland Revenue Ordinance (IRO), an individual is considered a tax resident in Hong Kong if they meet any of the following criteria:
- Ordinary Residence: An individual is considered ordinarily resident in Hong Kong if they have established a permanent home in Hong Kong and have no intention of leaving. This is determined based on factors such as the duration of stay, family ties, and social and economic connections.
- Physical Presence: An individual is considered physically present in Hong Kong if they are present in Hong Kong for a continuous period of 183 days or more in a calendar year.
- Domicile: An individual is considered domiciled in Hong Kong if they have a permanent home in Hong Kong and intend to remain there indefinitely.
Impact of International Tax Treaties on Tax Residency
Hong Kong has entered into Comprehensive Double Taxation Agreements (CDTAs) with various countries to prevent double taxation and promote cross-border trade and investment. These CDTAs may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
Key Provisions in CDTAs Relating to Tax Residency:
- Tie-Breaker Rules: CDTAs often include tie-breaker rules to determine tax residency in cases where an individual is considered a resident of both Hong Kong and the other contracting jurisdiction under their respective domestic laws. These rules typically consider factors such as the individual's permanent home, family ties, and economic interests.
- Specific Exceptions: Some CDTAs may include specific exceptions to the standard residency criteria. For example, the CDTA between Hong Kong and the United Kingdom provides that an individual who is employed in Hong Kong for less than 183 days in a calendar year will not be considered a tax resident of Hong Kong.
The treaty-specific modifications to tax residency criteria aim to prevent double taxation and provide clarity for individuals and businesses operating across borders. They reflect the mutual agreement between Hong Kong and the other contracting jurisdiction to facilitate tax compliance and enhance economic cooperation.
