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UKexpat · Nov 11, 2009, 03:14 PM

I'm from the UK and I've just received my 3 year US working visa type L1 for specialised knowledge.
My company is based in China and my job role requires me to split my time between New York, China and the UK.
As my contract is Chinese my company are suggesting that I be paid into a Hong Kong bank account and pay Hong Kong tax and to spend less than 183 days in the US so they don't have to put me on an American contract, but I'm worried that if I have a working visa for the US and using it without paying US tax then this could cause problems for me in the future.
Any advice would be greatly appreciated!

Thanks...

MukatA · Nov 11, 2009, 11:25 PM

This is from the tax treaty (IRS Publication 901)
"Pay received by residents of the People's Republic of China for services performed as employees (dependent personal services) in the United States is exempt from U.S. tax if:
* The residents are present in the United States for no more than 183 days in the calendar year,
* The pay is paid by or for an employer who is not a U.S. resident, and
* The pay is not borne by a permanent establishment or fixed base that the employer has in the United States.
* These exemptions do not apply to directors' fees for service on the board of directors of a U.S. corporation.

These exemptions generally do not apply to income received as a public entertainer (such as a theater, motion picture, radio, or television artist, musician, or athlete). However, income of athletes or public entertainers from China participating in a cultural exchange program agreed upon by the U.S. and Chinese governments is exempt from U.S. tax."

UKexpat · Nov 12, 2009, 01:53 PM

Hi MukatA,

Many thanks for your response! I have piece of mind that what I've been asked to do is all above board!
If I was to request to extend my visa at the end of 3 years do you think that this could affect my case?

Thanks...

Five Rings · Nov 12, 2009, 02:08 PM

I believe in your case the UK treaty applies since you are a UK citizen. That you are employed by a chinese company is very nice but that has nothing to do with your residency for treaty purposes.

The US/China treaty does not apply to residents of Hong Kong. See Art. 3 of the technical explanation of the US/China treaty

MukatA · Nov 12, 2009, 10:14 PM

Yes, you will be covered by UK treaty.

UKexpat · Nov 13, 2009, 07:31 AM

OK thanks...

What does the UK treaty state in this circumstance?

Five Rings · Nov 13, 2009, 08:07 AM

The treaty article that applies to you is Art. 14.
http://www.ustreas.gov/offices/tax-p...y/uktreaty.pdf

It's as simple as this; you will pay tax on your US income to the US unless you can escape through the provisions of Art. 14(2). You will be very busy counting days.

Moreover, you may be taxed on your worldwide income if you become a US resident by substantial presence and it is determined (under treaty) that you are a US resident; see Art. 4 of the treaty.

UKexpat · Nov 13, 2009, 08:27 AM

My company is asking me to count my days, so that I don't spend any longer than 183 days in any country, US, UK or China.

So does this mean that if I'm under these days.. that being paid UK pounds into a Hong Kong bank account, paying Hong Kong tax as well as keeping up my National Insurance payments in the UK (for my state pension) then I should be OK?

I just don't want there to be any complications in the future if I wanted to extend my visa in the US, go back to the UK & come back to work in the US in the future etc.. As my company is likely taking their own situation into consideration and not necessarily considering my personal situation.

Thank you so much for your advice...

IntlTax · Nov 13, 2009, 09:02 AM

You can only rely on the US-UK treaty if you are still tax resident in the UK. Will you still be subject to tax in the UK?

UKexpat · Nov 13, 2009, 09:06 AM

I will only be resident in the UK maximum 3 months of the year, then 3 months in China/Hong Kong and 180 days in the US.

My Chinese company has requested that I be paid into a Hong Kong bank account so that I will pay Hong Kong tax and so long as I spend less than 183 days in each country then I should only pay HK tax and not tax to any other country.

Thanks..

IntlTax · Nov 13, 2009, 09:10 AM

Will you be liable to tax in the UK by reason of your residence in the UK?

UKexpat · Nov 13, 2009, 09:16 AM

Not to my knowledge. I'm in the process of filling in a P85 to inform the tax office that I am no longer living in the country as my National Insurance contributions will stop as I'm no longer paid in the UK and so I will need to pay them privately from now on to ensure my state pension, 30 years contributions.

IntlTax · Nov 13, 2009, 09:24 AM

You will not be able to rely on the US-UK treaty. You will need to determine your U.S. tax residence status under the substantial presence test.

Under this test, if the number of US days during the current year plus one-third of the US days in the first prior year plus one-sixth of the US days in the second prior year adds to more than 183, you will be a resident of the U.S. for that year.

Five Rings · Nov 13, 2009, 09:51 AM

Sorry; it appears to me from what you are saying that you have created a permanent establishment in the US. See:
Permanent establishment - Wikipedia, the free encyclopedia

See particularly the commentary on the word "agent"

The most time you can spend in the US without triggering residence by substantial presence is 121 days year after year.

Five Rings · Nov 13, 2009, 10:05 AM

Actually, it is your company that has a problem if it is based in Hong Kong.

There is no treaty between Hong Kong and the US since Hong Kong taxes on a source based regime only. That means only income earned in Hong Kong is taxable there.

By your presence in the US and doing business therein as a dependent agent you have created a permanent establishment in the US. The Hong Kong company will be liable to tax on US revenues in the US.

UKexpat · Nov 18, 2009, 10:40 AM

Sorry for my late response.. I've emailed my company to request that they either give me a contract that is based in the US or if they don't want to do that in my first year, then they give me a letter in writing to say that I won't be personally liable for any tax issues if they insist on doing it this way.

Do you think this will be enough to cover me at least for now? And then in a years time I will insist on a US contract.

There is a US office anyway, I'm not working independently, so they will be paying tax on earnings in the US.

UKexpat · Nov 18, 2009, 10:42 AM

The company is Chinese, but it has offices allover the world... UK, HK, US, Australia, Austria...

Five Rings · Nov 18, 2009, 11:43 AM

Who cares what your company says? US residency rules will govern.

Your only problem will be whether you are taxed on your worldwide income by the US or only income connected to a US trade or business.

Thus, you must look to the treaty that applies which seems to be, from your posts, the UK/US treaty.