Question

John, a UK resident, is employed by a corporation based in the UK, with an annual income equivalent to HK$4,000,000. John is required to travel to various group companies in different countries to oversee their operations. However, for convenience purposes, most of his work is performed in Hong Kong. John’s travelling schedule for the year ended 31 March 2020 was as follows: Hong Kong 225 days (including 15 days annual leave) China 95 days Other Asian countries 20 days UK 25 days 365 days

Calculate John’s assessable income for the year of assessment 2019/20? D. $2,400,000 (Ans) $4,000,000 x 219/365

Answer 1

As per the Inland Revenue Ordinance rules, if any person has a non-Hong Kong employment, the assessor will assess his or her tax liability according to the days he or she spent in Hong Kong during each year of assessment. Such a person qualifies for days-in-days-out basis of assessment. Under this basis, the person is required to report full annual income in tax return and then claim exemption on same.

So, income attributable to days spent in Hong Kong is taxable. Further, any leave pay attributable to services rendered in HK is also taxable. Leave days attributable to services rendered in Hong Kong is computed as follows:

Total leave days * (Business days in Hong Kong / Total business days)

For the case in question, John has a non-HK employment, and he spends considerable time in HK (more than 60 days), so he qualifies for days-in-days-out basis.

Total annual salary = HK$4,000,000

Total leave days = 15

Business days in Hong Kong = 225 days – 15 days annual leave

                                                     = 210 days

Business days in China = 95 days

Business days in Other Asian countries = 20 days

Business days in UK = 25 days

Total business days = 210 + 95 + 20 + 25 = 350 days

Leave days attributable to services rendered in HK (As per formula above) = 15 * (210 / 350) days

                                                                                                                                   = 9 days

So, total no. of days attributable to services rendered in HK = 210 business days + 9 leave days = 219 days

So, John’s assessable income for the year 2019/20 in HK = Annual income * Days rendered in HK/365

                                                                    = HK$4,000,000 * 219/365

                                                                        = HK$2,400,000