AustCham Hong Kong highlights negative impact to Australian business from proposed tax changes

Please find below a Media Release from the Australian Chamber of Commerce in Hong Kong – for further enquiries please contact Stefanie Evennett, Chief Executive; Stefanie.evenett@austcham.com.hk

AustCham Hong Kong highlights negative impact to Australian business from proposed tax changes

HONG KONG, 22 September, 2023 --- The Australian Chamber of Commerce in Hong Kong has written to the Australian Government to highlight concerns that proposed changes to the Australian individual tax residency rules will unduly impact Australian business operations and Australian residents in Hong Kong.

In a written submission to a Treasury consultation ‘Modernising the individual tax residency rules’ the Chamber’s Chair Josephine Orgill stated, “The new residency rules, as currently proposed, will result in an inequitable outcome for Hong Kong based employees. This will be adverse to Australian businesses as it will materially impact their ability to attract staff and executives to Hong Kong. It follows that this will have a significant adverse impact on the role and influence of Australians in the region at a critical time, when continued deep engagement on the ground is required.”

Hong Kong, one of the world’s leading financial centres has Australia’s largest commercial presence in Asia and is home to one of the largest Australian communities abroad, with around 100,000 Australians living and working in Hong Kong. A Free Trade Agreement signed between Hong Kong and Australia in 2020, locking in zero tariffs for Australian exporters and guaranteeing key market access, underpins that the territory is one of Australia’s most important trading partners.

Orgill added, “Hong Kong tax residents will be uniquely impacted by these new residency rules more so than perhaps any other jurisdiction given that there is no double tax agreement in force between the two jurisdictions (unlike the other jurisdictions with high number of Australia businesses and individuals being Singapore, the United Kingdom, and the United States). Australian citizens and permanent residents living and working in Hong Kong (irrespective of the duration that they have lived outside Australia) are likely to be severely impacted under the proposed changes.”

Under the Board’s proposed model, the primary test will be a simple ‘bright line’ test — a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test ie have been in Australia for between 45 and 182 days per year for whatever reason will be subject to secondary tests where only two of four secondary tests need to be passed to be considered an Australian tax resident; these four secondary tests are: whether the individual has the right to reside permanently in Australia, has family ties to Australia, the legal right to access residential accommodation or Australian economic connections.

The Chamber is concerned that these proposed time limits and factor tests would encompass the majority of Australians living offshore with the unintended negative consequences of disrupting family and educational ties as well as the way in which Australians and Australian businesses in Hong Kong conduct their business dealings with China and Australia. In their written submission there are a number of other aspects Chamber has commented on with respect to reasonable and proportionate measures and if the proposals meet the purported aims of simplicity and clarity.

It is AustCham’s submission that the inequitable outcomes, based merely on whether there is a double tax agreement with that jurisdiction, should be addressed through the introduction of a tie breaker test, similar to OECD Model Tax Convention on Income and Capital, where the Secondary Test applies.

The tie breaker provision ensures that individuals that are genuinely tax resident in another jurisdiction are not discriminated against and unfairly treated resulting in double tax based merely on their home jurisdiction. This discrimination and inequity will be experienced by those individuals that live and work in Hong Kong as it does not have a double tax agreement with Australia and is not expected to finalise one with Australia in the immediate future.

With Hong Kong’s unique advantage of close links to Mainland China, independent regulators and a common law system there are important opportunities and benefits for Australian companies based in Hong Kong.

It is vital that these issues are addressed, as Orgill points out, “in the absence of any amendments to the rules as outlined in the consultation, the proposed changes will result in an additional cost to Australian businesses operating in Asia. Further Hong Kong based employees would be reluctant to travel to Australia either on business or for leisure, and it will also influence where they send their children to school and where they invest their wealth going forward.” 

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About AustCham Hong Kong

The Australian Chamber of Commerce in Hong Kong (AustCham Hong Kong) was incorporated in 1987 to promote Australian business interests by providing ongoing business development and networking opportunities. AustCham HK has over 900 members, who are representatives of more than 230 Australian, international, and local companies within the Hong Kong business community.

The Chamber seeks to connect, engage, and represent members through networking and informative events, supporting and facilitating industry-led committees and representing the views, values, and interests of Members to government departments, private think-tanks, and other leading organisations in Hong Kong and Australia.

The Chamber’s mission is to promote and represent Australian business and values, while enabling members to connect, engage, and grow bilateral relationships.

Contact: Stefanie Evennett, Chief Executive; Stefanie.evenett@austcham.com.hk