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State-owned enterprises
BusinessChina Business

China extends tax dragnet to worldwide income, with state employees in Hong Kong first to feel the pinch

  • Mainland SOE employees based in Hong Kong get directive to declare their 2019 incomes, pay up to mainland tax rates
  • Beijing intends to apply the full force of its tax laws that were previously neglected in practice, Deloitte China says

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Pedestrians in face masks are seen crossing the road in Central Business District. Unofficial estimates put the number of Chinese workers and residents in Hong Kong at 80,000 to 150,000. Photo: Winson Wong
Yujing Liu
China’s tax authorities are tightening personal income tax law by extending the dragnet to income earned globally, with employees of state-owned enterprises based in Hong Kong first to feel the pinch, according to people involved in the matter.
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SOE workers hired in the mainland and expatriated to the city received a directive this week to declare their 2019 salaries and make up any shortfall caused by the different tax rates in the two regions, they said, declining to be identified because of the sensitivity surrounding the matter.

The order from the State Tax Administration is seen as the first step of Beijing extending its reach to millions of Chinese working and studying abroad. Many countries have cooperated and strengthened the global exchange of income and tax information in recent years, primarily to screen the flow of money to combat money laundering and terrorism financing.

The new directive has not only caught thousands of mainland SOE employees in Hong Kong by surprise, the people said. It has also stoked discontent among them because of the hefty arrears caused by the wide gap in taxation rates between the two jurisdictions.

Hong Kong’s income tax rate is among the lowest globally, capped at 15 per cent for top earners. In China, the tax rate goes up to as high as 45 per cent for annual income exceeding 960,000 yuan (US$136,810).

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