HK Company, Salary, and Accounting

[csmik]

Hi Everyone,

I recently created my company in HK, I started making money. I would like now, as a director, to use the money for personal purposes.

Note: I'm a French resident, and doing business exclusively in China. Then, everything happens outside of HK.

I have a few legal questions:
- How can I give myself a salary? Can I simply transfer some money on my bank account every month, and mention it when I fill my tax form?
- As a director, if I give myself a salary, should I pay any tax in HK? (I know I nee to declare my salary in my home country, and pay taxes on it).
- As a director, I saw a solution to pay myself with dividends. But how taxes work with dividends? Should I pay the same amount of taxes as a French company? Where should I pay taxes? France, or HK?

I'm a bit confused with all these points. Maybe someone here already had the same and could help me
Otherwise, I currently don't have any accountant (my accounting is simple and I'm handling it by myself so far), but maybe they're the people I should ask these questions? Could you recommend any good -not too expensive- accountant in HK?

Thanks a lot for your help!

[HK_Katherine]

Yes, you give yourself a salary by paying yourself some money. Best to keep a record of it. Ideally draft an employment contract with your company (there is a template on the government website, simple as anything to fill in). That way you are all set up as an employee of your company.

Yes you list your salary on the tax forms (there are tax forms that employers have to fill in for each employee) but as a non resident in Hong Kong you would not pay any tax.

As an employee your company must also pay MPF unless you have a recognised pension scheme outside of HK - if so write down the details and file that in case anyone asks.

There is no tax on dividends in HK but as a non resident there is no tax on salary either so the choice of salary vs dividends will come down to how french tax sees them. There are rules (somewhere) however about paying dividends if you make no profit so be careful about that. Salary is probably easier.

We use Aswiss (google them) as accountants for our company. They are very familiar with foreigners and their questions.

[HK_Katherine]

One more thing - you MUST submit audited accounts to the tax office here in HK for your company. So at minimum you need an auditor. There are big penalties for forgetting to do this. (Been there, done that!).

[mkst]

-If you are a director of a limited company, director's emolument is fully chargable to HK salaries tax even you are not a HK resident.
-If your business is exclusively in China and if you have no actual business operation in HK, you can apply for offshore claim of business income. No profits tax at all.

My suggestion : No director emolument, No Profit Tax, Offshore Claim of Business Income. Earn Dividend.

[csmik]

I'm a bit confused, "as a non resident in Hong Kong you would not pay any tax" radically opposed to "director's emolument is fully chargable to HK salaries tax even you are not a HK resident".

I guess the wiser advise here being is to contact an accounting firm. I'll check Aswiss, Also got a reference to CPA. Will contact both.

Thank you both for your reply

[shri]

@csmik -

Directors

You are a director of a Hong Kong company if your position is defined by the relevant duties and responsibilities stipulated in the Companies Ordinance, and a director of an overseas company if you have similar duties and responsibilities as laid out by corresponding foreign legislation. A directorship is regarded as an office. In general, if you are a director of a company resident in Hong Kong, your full income derived from that office in Hong Kong is chargeable to salaries tax. This is not affected by the number of days during the year of assessment that you stayed in Hong Kong, and no exemptions or relief are available.

GovHK: Application for Full or Partial Exemption of Income under Salaries Tax

[csmik]

Thanks, then it's clear now I'll try to figure out how it works with the French gvt now.

[HK_Katherine]

@csmik -




GovHK: Application for Full or Partial Exemption of Income under Salaries Tax

One of the directors of my companies lives in BKK and certainly gets exception on salaries tax for the portion of the year he is not in HK. But he also has an employment agreement with the company.....

[mkst]

Under Departmental Interpretation and Practice Notes DIPN10 para. 34 about Director's fee
http://www.ird.gov.hk/eng/pdf/e_dipn10.pdf

(D) DIRECTORS’ FEES34. Fees paid to persons who hold the office of director of a corporationwhose central management and control are exercised in Hong Kong, areincome arising in or derived from Hong Kong and chargeable to Salaries Taxunder the basic charge of section 8(1) irrespective of where the person resides.This is because the office of director of a corporation is located in a placewhere the central management and control of the corporation is exercised (seeMcMillan v. Guest, 24 TC 190). Thus, if an office is located in Hong Kong,any fees derived from the office can be said to arise in Hong Kong. Neitherthe extension to the basic charge under section 8(1A), nor the exclusion undersection 8(1A)(b) or (c), has any application to directors’ fees. They applyonly to income from employment. This issue was before the Board of Reviewin Case No. D123/02, 18 IRBRD 150 in which the Board found that the officeof director held by the taxpayer was located in Hong Kong. In this case, theBoard found that part of the superior and directing authority of the companywas exercised in Hong Kong.

[HK_Katherine]

But surely the question is whether money paid to someone who is a director is automatically a "director fee" or whether it is employment income. Most of what I do, for example, is not "directing" the company - it's being a consultant (which is what we do, we are consultants). If what the OP is doing is not "directing" but "acting like an employee" surely that's the same? Because if not I might need to tell my BKK-based director he's filling in his salary tax form wrong!