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Bankers mull exit from Hong Kong on shock 45% China tax rate

They fear being squeezed by both new levy and sky-high living costs

Hong Kong

FEARS of a Hong Kong brain drain are increasing after China moved to tax its citizens' global income, undermining the financial hub's appeal to thousands of bankers and other white-collar workers from the mainland.

Faced with a tax rate as high as 45 per cent - up from about 15 per cent previously - Chinese professionals across Hong Kong are considering moving back home to avoid getting squeezed by both the new levy and sky-high living costs in the former British colony, according to interviews with workers and recruiters.

The prospect of an exodus has upended expectations that mainland talent would help offset any outflow of locals and foreign expatriates from Hong Kong, many of whom are looking to escape the city's controversial new national security legislation.

While questions remain about how broadly Chinese authorities will apply the new tax rules in Hong Kong, professionals of all stripes now have reasons to leave a city that not long ago was viewed as one of the world's most attractive places to build a career. That risks weighing on Hong Kong's battered economy and further undermining its status as a premier financial centre.

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The focus on Chinese taxes has intensified in recent weeks after state-owned enterprises (SOEs) in Hong Kong told workers who transferred from the mainland to declare their 2019 income so they can start paying taxes at home. Chinese SOEs are also informing employees in other locations such as Singapore, Bloomberg News reported last week.

While Chinese authorities revised the nation's tax rules in January 2019, they only recently disclosed detailed instructions on how to comply - a move that caught many workers off guard. For now, it appears that only SOE employees who transferred from China have been explicitly instructed to pay taxes on their 2019 income.

It's unclear how Chinese authorities will apply the tax laws to citizens who were hired overseas or who don't work for state-owned companies.

Some companies may act to soften the blow by boosting salaries, particularly for high-ranking executives, but most employees will likely have to absorb the hit to their take-home pay, according to Feng Ao, president of Wosheng Law Quotient Academy, a consultancy that advises China's banks, insurers and trusts on tax laws. "For the vast majority of employees, the chance of giving subsidies and raises depends on the company's profitability," Mr Feng added. "It's unlikely to happen given the global macro environment amid the pandemic."

One senior executive at a Chinese state-owned bank said that his tax bills will now probably wipe out the savings he amassed since moving his family to Hong Kong a few years ago. His colleagues have petitioned superiors in Beijing for relief, but have so far failed to gain much traction.

Some are considering moving back to China or swapping into a Hong Kong passport if they've lived in the city long enough to qualify, added the banker.

Hong Kong has granted more than 340,000 immigration visas to people from mainland China over the past five years, government figures show.

Investment bankers in the city typically earn about 25 per cent to 30 per cent more than those in Shanghai, according to recruiters, though much of that extra pay gets whittled away by higher living costs. BLOOMBERG

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