# 3 June 2013 Asia Assignments – regular Employee vs. Director Tax cost differences Depending on the position within a company in China, India, Hong Kong and Singapore different tax regulations apply. Whereas Employees and Executive Directors are in most cases only taxed based on their working days, Directors with supervisory role (e.g. Board Member, Non-Executive Directors) are usually subject to local Personal Income Tax even if they did not spend any days in the respective country. For an Expatriate living (centre of vital interests) in Germany the following table shows where income can be exempt and, when the income is taxable.
Employee Host country I. Tax Base
II. INCOME working days in host country working days outside of host country
Taxation of private income from Germany e.g. rental or interest income III. Avoidance of double taxation in Germany
China³
India³ Personal Income Tax Liability depends on residence status (Worldwide principle) Taxable
Personal Income Tax Liability depends on location of income source (Territorial based)
Tax exempt¹
Tax exempt¹
Tax exempt¹
Tax exempt¹
Tax exempt¹
Tax exempt
Chinese Employment Income will be exempt² from German taxation
» Indian Employment Income will be exempt² from German taxation
¹ Further conditions apply
² Based on Double Tax Agreement (DTA) with Germany ³ Regulations are also applicable for Executive Directors
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Hong Kong
Personal Income Tax Liability depends on residence status (Worldwide principle) Taxable
Taxable
Tax of Hong Kong Employment Income will be credited against German Tax (no DTA)
Singapore³ Personal Income Tax Liability depends on location of source (Territorial based)
Taxable
Taxable if the overseas employment is incidental to the Singapore employment unless “Not Ordinarily Resident Scheme” is granted to the employee. Tax exempt¹
Singapore Employment Income will be exempt² from German taxation
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Director Host country I. Tax Base
II. INCOME working days in host country working days outside of host country
Taxation of private income from Germany e.g. rental or interest income III. Avoidance of double taxation in Germany
China
India
Hong Kong³ Director’s remuneration is generally taxable Taxable
Singapore
Director’s remuneration is generally taxable Taxable
Director’s remuneration is generally taxable Taxable
Director’s remuneration is generally taxable
Taxable
Taxable
Tax exempt¹
Taxable For a non-resident director, the company is required to withhold tax at 30% of the director’s remuneration regardless of the director’s presence in India. Tax exempt¹
Taxable For a non-resident director, the company is required to withhold tax at 20% of the director’s remuneration regardless of the director’s presence in Singapore.
Tax exempt
Tax exempt¹
Tax paid on Directors remuneration in China will be credited² against German Tax
Tax paid on Directors remuneration in India will be credited² against German Tax
Tax paid on Directors remuneration in Hong Kong will be credited against German Tax (no DTA)
Tax paid on Directors remuneration in Singapore will be credited² against German Tax
¹ Further conditions apply ² Based on Double Tax Agreement (DTA) with Germany ³ Regulations are also applicable for Executive Directors
Conclusions: The remuneration of Non-Executive Directors (e.g. Board Members) is always subject to taxation in China whether or not the Non-Executive Director spends any working day in China. In Singapore and India employers are required to withhold a certain percentage of his remuneration. Hong Kong’s tax law makes no difference between Executive and Non-Executive Director thus Directors are subject to tax in any case. Germany will then credit the tax paid. A regular employee and in case of Singapore, China and India also an Executive Director will be taxed based on working days within these countries. Germany will then exempt the income from taxation but factor it into the calculation of the personal income tax rate (so-called "progression clause”). Companies considering assign management positions should therefore carefully review which type of contract is more beneficial from their economic but also from a tax point of view. In view of the Chinese regulations, it is advisable for companies to consider the length of stay of their expatriates in China, since this aspect has major influence on the extent of taxation in China.
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# 3 June 2013 Author WTS Alliance GES
Contact Frank Dissen • Frankfurt am Main,
[email protected] Daniel Niedermayer • Shanghai,
[email protected] Kunjan Gandhi • Mumbai,
[email protected] Lucia Seltmann • Hong Kong,
[email protected] Guat Ling Toh • Singapore,
[email protected]
Germany Taunusanlage 19 • 60325 Frankfurt/Main T: +49 69 133 84 56-0 • F: +49 69 133 84 56-99 China Unit 031, 29/F Hang Seng Bank Tower • 1000 Lujiazu Ring Road Pudong New Area • Shanghai T: +86 21 504 786 65 • F: +86 21 388 212 11 India 1A-D, Vandhana, 11 Tolstoy Marg, New Delhi 110001 T: +91 982 004 2357 • F: +91 112 331 3908 Hong Kong Unit 1004, 10/F Kinwick Centre • 32 Hollywood Road, Central • Hong Kong T: +852 2528 1229 • F: +852 2541 1411 Singapore 10 Anson Road No. 12-14 International Plaza • Singapore 079903 T: +65 6220 9884 • F: +65 6225 9890
Disclaimer The above information is intended for general information on the stated subjects and is not exhaustive treatment of any subjects. Thus, the content of this Tax Letter is not intended to replace professional tax advice on the covered subjects. WTS cannot take responsibility for the topicality, completeness or quality of the information provided. None of the information contained in this Tax Letter is meant to replace a personal consultation. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected, if not generated deliberately or grossly negligent.
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