Hong Kong Salaries Tax – Disguised employments

Section 9A of Inland Revenue Ordinance is to combat avoidance arrangements involving the use of service companies to disguise what are in substance master-and-servant employment relationships. It provides that if a “relevant person” pays remuneration for services rendered by a “relevant individual” to a company controlled by that individual, the remuneration is deemed to be employment income and assessed as such on that individual.

Section 9A applies if the following conditions exists:

  1. The relevant person carries on a trade, a profession or a business, or a prescribed activity;
  2. The relevant person enters into an agreement with the relevant individual for the services carried out by the relevant individual. The agreement may be in writing or implied; and
  3. Under the agreement, remuneration for such services is paid to a “service company”.

A prescribed activity under (a) is one prescribed in the Gazette by the Revenue under Section 9A (6). So far, the has been no such prescribed activity.

It is anticipated that Section 9A affects many business arrangements that are done without a tax-avoidance purpose. To restrict its effect, the law provides that a business arrangement satisfying all the following conditions falls outside its scope.


  1. the agreement does not provide for remuneration to include annual leave, passage allowance, sick leave, pension entitlements, medical payments or accommodation, etc.;
  2. in the case of the agreement requiring any services to be carried out personally by the relevant individual, that individual also carries out similar services for other persons;
  3. the performance of the relevant individual is not subject to “employer-type” control or supervision by the relevant person;
  4. the remuneration is not paid on a basis commonly used under a contract of employment;
  5. the relevant person does not have the right to terminate the services in a manner commonly provided for under a contract of employment; and
  6. the relevant individual is not held out to the public to be an officer or employee of the relevant person.

Besides, the Commissioner of Inland Revenue may in his discretion exclude a business arrangement from Section 9A if he is satisfied that at all relevant times the carrying out of the services under the agreement is not substantially in the nature of an office or employment. This provides an escape route for those arrangements failing to meet all the above conditions.

Section 9A is invoked when tax avoidance scheme is suspected. In other cases, the IRD will look at such factors as master and servant relationship, control, organization, economic risk… etc. to determine the question of contract of service versus contract for service.