Preferential Hong Kong Salaries Tax treatment on provision for rent-free or subsidized accommodation

Under current prevailing Hong Kong tax law, for an employer provides rent-free or subsidized accommodation to the employee, or for the employer wholly or partly reimburses the rent paid by the employee under a lease entered by the employee, instead of taxing the employee on the actual amount of rent paid or reimbursed by the employer, the Inland Revenue Ordinance specifies a calculation of rental value (“RV”) to be treated as taxable value of housing.

To compute the RV, rent paid by the employee to the employer or the landlord can be deducted to arrive at the RV.

The RV is calculated at 4%, 8% or 10% (*) of his/her total net income from the employer and the associated corporation after deducting outgoings and expenses (excluding expenses of self-education), depending on the type of accommodation provided.

(*): Depends on the types of accommodation

However, if the employer does not control how the employee would spend the money or has not exercised proper control over the expenditures, the Assessor will regard the reimbursements as cash allowance and include the full amount as income in the Assessable Income.

Proper control means;

  • a clearly defined system is in place, under which the ranks of those officers who are entitled to rental reimbursements and the limit of their respective entitlements are clearly laid down;
  • mode of housing benefit entitled by the employee and the limit of rental reimbursement are clearly specified in the contract of employment;
  • employer will examine the tenancy agreement and rental receipts and verify the actual payment of rent against the tenancy agreement at regular intervals, and also retain the relevant documents for record purpose.

Simple illustration for tax saving under preferential treatment on rent-free accommodation vs housing allowances:

For the year of assessment from 1 April to following 31 March;

  • A has a total salary of HKD1,000,000
  • Preferential treatment: His employer pays for his housing at a flat leased under the employer name at a total cost of HKD500,000 or
  • Housing allowance: His employer pays a housing allowances of HKD500,000

Mr. A’s total income subject to Hong Kong salaries tax is:

Preferential treatment on rent-free accommodation (HKD)

Housing allowances (HKD)

Salary

1,000,000

1,000,000

Rental Value of Accommodation, 10% on all other income (in this case 1,000,000)

100,000

Housing Allowance

500,000

Total Assessable Income

1,100,000

1,500,000

As can be seen by comparing the two, although the total costs of the employer is the same, being HKD1,500,000, the assessable income of the employee is significantly reduced when it is determined that the employer is providing accommodation to the employee.

For any tax advice in relation to the above, we are happy to assist.

Fidinam (Hong Kong) Limited
Room 1501, Prosperity Tower
39 Queen’s Road,
Central, Hong Kong
Tel:(852) 2110 0990
Email: tax@fidinam.com.hk

Business ties between Switzerland and China

The Free Trade Agreement signed between Switzerland and China entered into force in July 2014 certainly contributed to create stronger economic ties between the two countries. However, as Fidinam Group Worldwide Vice Chairman, Mr. Paolo Balen explains during a recent interview, the real competitive advantage of Switzerland relies in the great value the Chinese business partners associate to the “Swiss made” brand.

Learn more about the topic thanks to the interview released by Mr. Paolo Balen to Rete Uno Radio Svizzera Italiana. The interview has been carried out by Mr. Guido Santevecchi, news correspondent from Beijing working at Corriere della Sera and Mr. Jean-Philippe Béja, political analyst and director at The National Center for Scientific Research (CNRS) in France.

Tax implication of the french new President election

On the 7th May 2017, France has elected Emmanuel Macron as its new President. The latter already introduced a project of taxation reform which foresees to change the current tax environment, beginning with the French wealth tax (ISF) and the passive income tax.

The wealth tax reform, from 2018

The wealth tax should become the real-estate wealth tax (ISI) and would only target property assets, offering a tax relief on movable assets held by French tax payers. This reform intends to cease penalizing investment in the national economy by the housing tax exoneration for 80% of the population, that would be supported by an increase of the general social contribution (from 8.2% to 9.9%).

The revision of passive income taxation

The government also wishes to simplify the complex passive income tax system, replacing the current progressive rate by a “flat rate” (single fixed sampling) of 30%, including social contributions. The revision concerns incomes generated on interests, dividends, capital gains, life-insurance contracts and traditional savings accounts. On the other hand, the reform should not trigger modifications on the tax regime of Savings Plan for Action (apart from the general contribution rise mentioned above), nor on special saving accounts (i.e. Livret A).

French attractiveness for corporations and individuals

The President has pledged to cut the corporate income rate to 25%, instead of 33.3%, by the end of his five-year mandate.  A way to promote French attractiveness for corporate organization, to stimulate business opportunities and thus expatriation to France. Following the PLF 2017 (Finance Law Project) and the article 155B of the CGI (French Tax code), the foreign employees and executives willing to work in France benefit from a specific and advantageous tax regime. This include tax exemption on the foreign part of their income, on their repatriation premium and on their salary during the 8 years following their employment.

Implementation of UBO register

A directive from the European Union has been implemented on August the 1st 2017 in the French domestic Law, aiming to strengthen the AML (Anti-Money Laundering) regulation and the prevention of financial terrorism. The decree introduces new obligations for entities already registered under the French registry (RCS) to provide information about their Ultimate Beneficial Owners (UBO). Companies incorporated after the 1st August 2017 shall directly identify and register their UBO. This new regulation also applies to French branches of foreign companies, non-listed French enterprises or economic interest groups that have their registered seats in France, as well as legal entities that will register an entity in France. Legal entities that were incorporated before 1st August 2017 need to declare their Ultimate Beneficial Owners by 1st April 2018.

Nicolas Michaux
Managing Director Fidinam Hong Kong

Fidinam Hong Kong
Room 1501, Prosperity Tower
39 Queen’s Road Central
Hong Kong
Tel: 852 2110 0990
Email: nicolas.michaux@fidinam.com.hk

FIDINAM: Business lunch with the SwissCham Australia, Nov 2nd 2017

FIDINAM: Over 50 years of professional advisory services

Thursday, November 2nd, Fidinam Group Worldwide will organize a business lunch in collaboration with the SwissCham Australia. The event will take place at O Bar and Dining, Sydney from 12h to 14h. The guest speaker will be a member of Fidinam Group Worldwide managing board, Mr. Alessandro Pedrinoni.

 

Fidinam: Sponsor of UltraVault inaugural event

We are glad to share the photographs of the recently organized, inaugural UltraVault event, jointly sponsored by Fidinam Group.

The event was a great success, for both organizers and guests.

Gold and Diamond experts explained the benefits of precious metal investment to the attendees and provided insights on private vaults and depository solutions.

Vietnam, one of the fastest growing economies in Southeast Asia

For decades, Vietnam’s GDP has been growing by an average of 6% per year, positioning the country among the fastest developing economies in the world. This allowed Vietnam to leave its prior status as one of the poorest countries on Earth and move into the desired stage of middle-income country. What is the secret behind the success story of Vietnam? This article offers the reader an overview of the key drivers that contributed to Vietnam’s incredible achievements.

Production factors

The fact that a high percentage of the population lives in the countryside (68% VS 44% in China) keeps production and labor costs low. Moreover, from a geographical perspective, Vietnam surely benefits from being the closest neighboring country of China, the world’s largest manufacturer. Indeed, as wages of low-skill employees are rising in China, Vietnam becomes the natural substitute country for companies seeking lower-cost production sites while simultaneously securing proximity to China’s advanced logistical infrastructure.

The relatively young population of Vietnam is also contributing to maintain this positive momentum. In contrast to China, where the median age is 36 years, Vietnam shows an impressive average age of 31 years.

Business practice

The government’s initiative to further develop the country as an attractive investment hub also turned out to be successful, with foreign companies feeling more confident to set up operations in Vietnam. Reforms have resulted in partial privatization of state-owned enterprises, liberalization of the trade regime, and increased recognition of private property rights.

In essence, a gradual integration into the global trade and investment scene allowed Vietnam to transform itself over the years into a more market-oriented economy.

That said, the bureaucratic nature of Vietnam’s economy, constantly changing laws, corruption at different levels of the government, and an immature financial sector might be sources of initial hardship for entrepreneurs and corporations. These factors surely make a trusted local business partner a valuable asset to count on when entering the Vietnamese market.

Import & Export

Since Vietnam became a member of the World Trade Organization (WTO) in 2007, the country has benefited from fewer restrictions and lower tariffs in export markets. In 2016, exports rose by 8.6% to USD 176 billion. The export increase was mainly caused by the rise of demand for mobile phone units and parts as well as other electronics, computers and IT components.

Vietnam’s impressive growth of exports is largely driven by Foreign Direct Investments. Indeed, the FDI sector accounted for 71% of Vietnam’s total exports and nearly 100% of the exported phones, electronics and components. Moreover, a considerable part of the imported capital goods is composed of machinery, equipment, parts, and electronics that are assembled, then later on exported to other countries.

Improved and facilitated access to cheaper raw materials and intermediate inputs, due to a drop of import tariffs as a result of their WTO membership, allowed Vietnamese manufacturers to open their doors to the rest of the world.

In February 2016, Vietnam, together with 11 other nations sharing borders with the Pacific Ocean, signed the Trans-Pacific Partnership (TPP), a treaty aimed at promoting economic growth, enhancing living standards, sustaining the creation and retention of jobs, enhancing labor protection, and promoting transparency within member nations. The future of the partnership is still uncertain as of January 2017. American President Donald Trump signed a presidential memorandum to withdraw the United States from the TPP. However, analysts maintain that Vietnam will surely be one of the major beneficiaries of TPP implementation.

Incorporation of an Invested Company in Vietnam

According to the local Investment Law and Enterprise Law, there are 3 key steps to undertake to establish a foreign invested company in Vietnam.

Step 1: Application for an Investment Registration Certificate (“IRC”)

As a first step to successfully register a foreign invested company in Vietnam, the applicant necessarily has to obtain an IRC. To receive this certificate, the foreign investor has to submit to the licensing authority an application dossier explaining the proposed investment project/business activities to be carried out in Vietnam.

The approval for the IRC is discretionary, and statutorily provided after 15 days from the date of submission of the application. However, in practice, the licensing process may take longer. In particular, should the authorities have concerns regarding the proposed business activity, a few rounds of information exchange might be necessary.

Step 2: Request for an Enterprise Registration Certificate (“ERC”)

Upon the issuance of the IRC, the foreign investor will be requested to apply for an ERC. It normally takes around 5 days to get this ERC.

Step 3: Request for a Trading Licence (“TL”) in case of incorporating a trading company

Once the foreign investor has acquired both IRC and ERC, the applicant has to apply for a TL, which is issued by the Provincial People’s Committee (“PPC”). Trading activities have to be intended as import, export, wholesale, retail, agency activity. Accordingly, for import and export, the estimated time for obtaining the license is 30 days, while for wholesale, retail and agency the estimated time is 45-60 days, as the PPC needs to obtain the approval of the Ministry of Trading and Industry prior to issuing the license.

Establishment of a representative office in Vietnam

There is also another alternative to enter the Vietnamese market, namely establishing a local representative office (“RO”).

An RO, by definition, cannot engage in profit-making activities, sign or enter into any contracts, or be engaged in trading activities. A company may establish an RO in a foreign country to conduct marketing and/or non-transactional operations. For a Vietnamese RO, the chief of the office is not required to reside in Vietnam.

The procedure for the establishment of this form of operation is very simple. It may take 20 days to get the Certificate of Operation of Representative Office, which is the only license needed by foreign investors who want to settle a representative office in Vietnam.

Patrick Heimann
Business Analyst

Fidinam Group Worldwide Limited
Room 1501, Prosperity Tower,
39 Queen’s Road Central,
Hong Kong
Tel: (852) 2110 0990
Email: patrick.heimann@fidinam.com.hk

Attractive tax regimes for foreigners wishing to move residence to Italy

The Italian Budget Law 2017, approved by the Italian parliament and converted into effective law at the end of 2016, introduces new tax regimes for specific categories of individuals residing abroad who are planning to move their residency to Italy.These newly developed residential regimes have been put in force by the Italian government with the purpose of positioning the country as a competitive and attractive jurisdiction. The following classes of foreigners are those impacted by the new tax regime:

  • Residence Permit for Investors
  • Residence Permit for Employees/Students
  • Special Residence Permit for High Income Individuals1.Residence Permit for Investors

This provision introduces the possibility of obtaining entry and residence in Italy for a period longer than three months but not longer than 2 years (subject to the possibility of renewal for 3 other years), if foreigners fulfill one of the following conditions:

Invest at least 2 million euros in securities issued by the Italian Government and keep the investment for at least 2 years, or;
Invest at least 1 million euros in the purchase of quotas/shares of an Italian company, with ownership to be maintained for at least 2 years, or;
Invest at least 1 million euros in the form of a charitable gift to support a project of public interest.

2.Residence Permit for Employees/Students

This amended regulation foresees a 50% reduction in taxable employment and self-employment income for the tax year in which the non-resident individual transfers his/her tax residence to Italy and for the following four years. This condition is valid given that:

  • The applicant must not have been a resident in Italy in the past 5 years, and he/she must commit to remain in Italy for at least 2 years.
  • The new legislation also extends the benefit to non-EU residents who hold a university degree and who have worked as an employee and/or are self-employed, or who have studied abroad in the 24 months preceding the application.

3.Special Residence Permit for High Income Individuals

This new legislation represents a radical change in the general principle of worldwide taxation applicable to Italian tax residents.

  • Indeed, as a general rule, Italian tax residents are taxed based on the worldwide income taxation principle. Under this tax regime, however, the foreign individual, although she/he will become a taxed resident in Italy, he/she will be taxed on the principle used for non-resident individuals. In essence, the taxable income will not be calculated according to the worldwide taxation principle, meaning that foreign generated income will be exempted from Italian tax.
  • To compensate tax exemption on income generated from non-Italian sources, these individuals can opt for a one-off payment of €100,000 for each tax year. The amount is calculated regardless of the amount of the taxable income (also deriving from inheritance/donations of foreign goods).
  • The regime can be chosen by individuals who have been a foreign fiscal resident for at least 9 of the 10 years preceding the application.
  • This tax break, intended to boost investment and internal consumption, may be renewed for 15 years but are revocable at any time. In case of revocation, it will not be renewable.
  • Moreover, individuals opting for this regime might extend the substitute tax regime to cover some, or all family members, given that all the above listed requirements are also met by the family members claiming the status. Under these circumstances, a substitutive tax of €25,000 is due for each family member who adheres to the program.

Thanks to a dedicated Italian desk, Fidinam Hong Kong counts on professionals specializing in Italian company and tax law. Our professionals can provide the best tailor-made solutions for clients looking for new investment and relocation opportunities.

Get in touch today with our Fidinam office in Hong Kong and learn more about our team.

Filippo Buzzi
Head Italian Desk

Fidinam (Hong Kong) Limited
Room 1501, Prosperity Tower
39 Queen’s Road Central
Central, Hong Kong
Tel:         (852) 2110 0990
filippo.buzzi@fidinam.com.hk

Secondary Residence in the UAE

Known for its sandy beaches and world-beating skyscrapers, Dubai is becoming an extremely popular choice for entrepreneurs and HNWIs seeking to establish an overseas residence.As part of the United Arab Emirates, Dubai hosts 2.7 million inhabitants. Currently over 200,000 Chinese call Dubai home, alongside tens of thousands of Europeans who use the Emirate as a holiday home or a springboard for their business in MENA.

Although the UAE may introduce a Value-Added Tax (“VAT”) in 2018, Dubai still features a competitive tax regime for its residents. No salaries tax, corporate income tax, capital gains tax, gift tax, estate tax or other form of withholding taxes are levied to any individual or corporate entity. Furthermore, the UAE’s official currency, the Dirham, has been pegged to the U.S. Dollar since 1993.

The UAE offers an Investor Visa programme to qualifying persons seeking to take advantage of its business potential and tax benefits. Currently, there are two streams to qualify for an Investor Visa:

1.Through purchasing a residential property
2.Through establishing a company in one of the free zones

The first stream entails purchasing a residential property of no less than 1 million Dirhams (approximately USD 275,000). It allows the visa holder to stay for 2 years in Dubai, which is extendable for another 2 years upon expiry. To maintain residency, it is sufficient to stay just 1 day in the UAE every 6 months.

The second stream requires the applicant to incorporate a Free Zone Company (“FZCo”) in one of the 20+ free trade zones, such as the Dubai Multi-Commodities Centre (“DMCC”). An Investor Visa applied under this stream will grant 3 years of residency to the applicant, which is extendable for another 3 years upon expiry.

Regardless of the stream of application, the UAE Investor Visa programme is known for its short and transparent approval process (around 2 months). Interested parties would benefit from the full service and expertise of Fidinam DMCC, a Dubai-based subsidiary of Fidinam Group Worldwide Ltd. Company secretarial services and accounting are also provided to FZCo owners for the ongoing maintenance of their UAE and regional operation.

Dubai is an attractive destination for those who are seeking a stable political environment, a tax-free jurisdiction and de facto USD-denominated environment in which to hold their assets. The vibrancy of and connectivity to the regional economy also gives additional appeal to ambitious individuals seeking to expand their business footprint globally.

Connect with us at Fidinam DMCC to learn more about the UAE Investor Visa today.

Matteo Pozzetti
Managing Director

Fidinam DMCC
Office 1705, JBC 5 Tower, Cluster W
Jumeirah Lakes Tower
Dubai, UAE
Tel: +971 (0)4-5549091
Email: matteo.pozzetti@fidinam.ae

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