In this article we discuss the legal implications that employers in Hong Kong should consider before allowing their employees to work remotely from an overseas jurisdiction.
DO EMPLOYEES HAVE A RIGHT TO WORK IN THE OVERSEAS JURISDICTION?
Employers should consider the legal status of the employee in the overseas jurisdiction. Unless the employee is a national or resident of the overseas jurisdiction, there is generally no right to work on a visitor visa or it is restricted in scope (e.g. meetings or training) on a business visa. The employer may be liable if the employee violates the immigration laws of the overseas jurisdiction.
WILL THE EMPLOYEE REMAIN LIABLE TO PAY SALARY TAX IN HONG KONG?
Under Hong Kong taxation laws, if the source of income is in Hong Kong, it is subject to salary tax. An employee working from an overseas jurisdiction may be liable to tax in both Hong Kong and the overseas jurisdiction. Relief may be available if there is a double tax treaty (“DTT”) between Hong Kong and the overseas jurisdiction, provided the prescribed conditions are fulfilled. An employee’s tax presence in the overseas jurisdiction may be established if, for example, the stay exceeds 183 days in a 12-month period (irrespective of the purpose and whether consecutive or not).
In Hong Kong, payment of salary tax remains the obligation of the employee, whereas in certain jurisdictions employers (or their subsidiaries in that jurisdiction) are expected to withhold relevant amounts from an employee’s salary and pay this to the tax authorities. Accordingly, it is prudent for employers to seek appropriate tax advice prior to allowing employees to work from overseas.
WILL THE EMPLOYEE CREATE A TAX PRESENCE IN THE OVERSEAS JURISDICTION?
Depending on the applicable foreign laws, the presence of an employee in an overseas jurisdiction may create a tax presence for the employer in that jurisdiction. Determinants may include the number of days of an employee’s presence, the number of employees in that jurisdiction, and the nature of duties (e.g. whether they enter into contracts on behalf of the employer). Upon establishment of a tax presence, an employer may become liable to pay corporate taxes in the overseas jurisdiction.
ARE REGULATORY AND LEGAL REQUIREMENTS OF THE OVERSEAS JURISDICTION APPLICABLE?
In case of regulated individuals (such as in the financial sector), employers need to consider the compliance requirements in Hong Kong and in the overseas jurisdiction including requirements (if any) to report the absence from Hong Kong, or to separately require approvals in order to perform the role lawfully from the overseas jurisdiction. Additionally, when an employee enters into contracts on behalf of the employer in the overseas jurisdiction there is a risk of the foreign law becoming the governing law of the contract contrary to the employer’s intention.
WHAT IS THE IMPACT ON THE EMPLOYMENT PROTECTIONS AVAILABLE TO EMPLOYEES?
All Hong Kong employment laws and protections continue to apply whilst the employee temporarily works remotely overseas. Employers and employees may mutually agree to vary the employment contract to factor in the remote working arrangement. However, any agreement in contravention of the Employment Ordinance is void. The employment relationship may also be subject to the employment protections in the overseas jurisdiction irrespective of any agreement with the employee. Applicable foreign law advice should be sought as there may be onerous obligations from an employer’s perspective.
WILL THE EMPLOYER REMAIN LIABLE FOR THE HEALTH AND SAFETY OF EMPLOYEES WORKING OVERSEAS?
Employers in Hong Kong have a common law duty alongside a statutory duty to take reasonably practicable measures for ensuring the health and safety of all employees at work. Employers are liable to compensate employees for personal injury from an accident arising out of and in the course of employment. These obligations may apply even when the employee works remotely overseas. Considering the challenges and ambiguities an employer may face in controlling the health and safety concerns, employers should consider setting out best practices in employment policies, seeking lawful undertakings from employees, and reviewing the coverage of the existing insurance policies and consider taking out insurance where necessary.
- Prior to allowing any employee to work remotely overseas, employers should seek appropriate legal advice and tax advice in Hong Kong and the overseas jurisdiction, including to ensure that the employee has a right to work overseas.
- Any remote working agreement should be documented in writing (including the applicable law, nature of duties, length of stay, and any appropriate indemnities).
- Depending on the employee’s role, employers may consider varying the employee’s role to an independent contractor.
- Employers should review their existing policies and insurance coverage for updating or implementing new policies.