Japan / Hong Kong Tax: New double tax agreement announced

Background

Currently there is no double tax agreement between Japan and Hong Kong resulting in domestic law determining whether business visitors between Hong Kong and Japan trigger a tax liability in the other location.

As Japan has no domestic exemption from tax for short-term business visitors, a business traveler from Hong Kong is technically subject to Japan individual tax on employment income whenever working in Japan.

Hong Kong's domestic regulations allow non-residents to spend up to 60 days per tax year visiting in Hong Kong before triggering a Hong Kong tax exposure. In general, the Hong Kong Inland Revenue Department will regard a taxpayer's occasional trips to Hong Kong as visits if he/she is based outside of Hong Kong and is required to render services overseas as a permanent employee.


New tax treaty – consensus reached

Japan's Ministry of Finance and the Hong Kong Inland Revenue Department, announced on 31 March 2010 that Hong Kong and Japan have reached a consensus on a new double tax agreement (the New DTA). This move is expected to herald a greater level of economic co-operation and trade between Hong Kong and Japan by bringing about tax benefits and certainty for companies with cross-border operations in these jurisdictions.

The New Double Tax Agreement will be signed and ratified upon completion of various procedures by the respective governments.

News of this new Double Tax Agreement will be of interest to employers in Japan and Hong Kong who have mobile employees working in these jurisdictions, especially those on short-term assignments or business trips to Japan where there is no domestic exemption regime. As no draft of the treaty is yet available, it remains to be seen whether the treaty will follow the OECD model "183 day" exemption.