THE UNIVERSITY OF HONG KONG

FACULTY OF BUSINESS AND ECONOMICS

ACCT3107 – Hong Kong Taxation

Tutorial Questions
Unit 3 – Salaries Tax (1)

Question 7

(a) Explain how the locality of employment is determined.

(b) Explain the differences between the tax treatment of Hong Kong employment and
non-Hong Kong employment.

Question 8

Explain how a contract of service can be distinguished from a contract for service.

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Question 9

Mr. Lee, a director of a Canadian company, was asked to return to Hong Kong and work for
the company’s subsidiary in Hong Kong as the chief finance manager on the following terms:

1. He entered into a separate employment contract with the Hong Kong subsidiary for a
term of 3 years renewable. The contract was faxed to Canada and signed by Mr. Lee
but the original contract was subsequently signed by the two parties in Hong Kong.
2. He was paid a monthly salary of Can$10,000. 30% of the salary was credited by the
Canadian company into his bank account in Canada and 70% into his bank account in
Hong Kong. Given that Mr. Lee’s contribution is for the benefit of the Hong Kong
subsidiary, the Canadian company recovered the whole amount of salary from the
Hong Kong subsidiary.
3. While Mr. Lee is under the employment of the Hong Kong subsidiary, he remains as
director of the Canadian company until further notice. The annual director’s fee
entitled by Mr. Lee is Can$5,000.

Mr. Lee arrived in Hong Kong together with his wife and 2 children on 15 February 2017
and reported duty on 1 March 2017. Apart from his immediate family, Mr. Lee has his
parents and other family members in Hong Kong.

During the year ended 31.3.2018, he stayed in China for a period of 185 days. As a result, he
paid PRC income tax. Apart from China, he also stayed in Singapore/Indonesia/Taiwan for a
total period of 100 days. For both years ended 31.3.2017 and 31.3.2018, he received the
director’s fee from the Canadian company though he never went back to Canada for the
meetings. In each year, he paid Canadian tax in respect of the director’s fee received.

Mrs. Lee commenced employment on 1 May 2017 with the Hong Kong Government as a
secretary at a monthly salary of HK$10,000. On 1 September 2017, she resigned from the
Civil Service and joined Cathay Pacific Airways, an airline company incorporated in Hong
Kong, as an air hostess at a monthly salary of HK$25,000. Her flight schedules are as
follows:
in HK in Asia in USA in Europe
1.9.2017 – 31.3.2018 40 days 100 days 20 days 52 days
1.4.2018 – 31.3.2019 70 days 80 days 110 days 105 days

In their HK salaries tax returns, Mr. and Mrs. Lee made the following claims:
1. Mr. Lee was not required to pay Hong Kong salaries tax for the year of assessment
2016/17 because he did not work in Hong Kong for more than 60 days in that year.
2. For the year of assessment 2017/18, a portion of Mr. Lee’s income as attributable to
his services rendered in China and other countries should be exempt from tax.
Moreover, the China tax and Canadian tax paid should be allowed as deduction from
the assessable income.
3. Mrs. Lee was liable to Hong Kong salaries tax to the extent of income derived from
her services rendered in Hong Kong only.

Required:

Explain whether or not Mr. and Mrs. Lee would be successful in their claims. You are not
required to compute their taxable income.

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