Next move for Hong Kong bankers? Next move for Hong Kong bankers?

The financial services industry in Hong Kong is experiencing an exodus of foreign expatriate workers as well as locals, driven by various factors. Employers are looking to relocate these employees, often elsewhere in Asia. This transition will have tax implications for employee and employer.

An exodus of expats from Hong Kong, driven in part by the current Zero-Covid strategy, is not unexpected. Current activity we are seeing, and articles in the financial press, indicate that this is now coming to a head. Increased relocation can pose a headache for global mobility teams, particularly within organisations with large expat populations in Hong Kong that are looking for an exit. Similarly, a lot of Hong Kong-based expats who went home for the holiday season may be grounded abroad, unable to get a flight back or unwilling to endure stringent quarantine requirements on their return.  There are of course also many local Hong Kongers looking to relocate. 

Companies are already exploring alternative locations in the APAC region where they could temporarily relocate their Hong Kong expats until things settle down. However, it is not as simple as picking a location and booking a flight. In addition to limited flight options, the potential personal tax implications must be analyzed. Among many issues, two of the most important considerations:

• If an individual assigned to / employed in Hong Kong continues to work on behalf of the Hong Kong entity, they will continue to be subject to Hong Kong income tax on their employment income, even if temporarily relocated to another country. Whilst unilateral relief to mitigate double taxation may be available in case an individual triggers income tax in another country, this is subject to review and approval by the Hong Kong tax authorities.
• Hong Kong’s network of Double Tax Agreements is not as extensive as you might think. Key locations with which Hong Kong has no Double Tax Agreement include Australia, Singapore and the US, meaning that if companies temporarily relocate individuals to these countries, income tax may be due from day one, as well as associated employer payroll compliance obligations (although it is worth noting that Singapore does have a domestic exemption of 60 days per calendar year). This can also give rise to policy questions that global mobility teams may wish to pre-empt; for example, who will pick up any incremental income tax that may be due in the new location, particularly given that Hong Kong is a low-tax jurisdiction.

Up-front analysis of these potential issues by global mobility teams will help them act at short notice. Leveraging existing mobility and equalization policies appropriately can also provide a governance framework to manage any compliance obligations that may arise.

In addition to the personal tax implications and potentially associated employer compliance requirements, other considerations will include:

• Immigration requirements – a work permit may be needed for an individual to work in another location, with associated application lead times
• Entry restrictions – Hong Kong is not the only country that can be difficult to enter
• Corporate tax implications – temporarily relocating groups of employees to a new country can result in the creation of a corporate tax presence, with the associated compliance requirements and costs. If they continue to work abroad for the benefit of the Hong Kong business, there may also be transfer pricing implications
• Regulatory compliance – certain roles may need to be performed in certain locations, and only by regulated or licensed individuals.

It does not look like the situation in Hong Kong will ease any time soon and it’s likely that any expats / foreign nationals currently in Hong Kong will be evaluating their options and potentially looking to their employer for help. With pre-emptive consideration of the potential hurdles that need to be overcome and careful contingency planning, Global Mobility teams with Hong Kong populations can get ahead of the game as well as play a role in any longer-term discussions within the organization about the continuing presence of an expat workforce in Hong Kong.