QROPS Hong Kong | QROPS Rules for 2017
QROPS Hong Kong 2017 – Surprise, the rules have changed again. Philip Hammond has moved the goal posts and essentially closed off a large part of the QROPS market, especially for many expats moving to Asia. The new rules mean that unless you are moving to Hong Kong for five years after pension transfer, a Hong Kong QROPS would be taxed with a 25% exit tax from the Inland Revenue.
So, you can wait and pay UK income tax and death tax on your UK pension in the future or pay the tax now if you are resident outside of Hong Kong. There are still advantages to this, particularly for younger expats with a longer investment horizon as many of the Double Taxation Agreements in Hong Kong give the taxation rights to Hong Kong. For example, if you are moving to any of these countries, the taxation rights go to Hong Kong, who tax your pension at zero rate. So, whilst you pay a 25% tax upfront, your pension would face zero taxation at point of withdrawal and zero tax on death.
If You Are Resident in These Countries, Your QROPS is Taxed in Hong Kong Only
Whilst you would face a 25% exit tax, these countries would face zero income tax, zero tax on growth and zero tax on death when you receive your retirement benefits.
Austria, Belgium, Brunei, Canada, China, Czech Republic, France, Guernsey, Hungary, Indonesia, Ireland, Jersey, Kuwait, Lichtenstein, Luxembourg, Malaysia, Malta, Mexico, Netherlands, Qatar, South Africa, South Korea, Switzerland, Thailand, UAE and Vietnam
The countries in the EEA are better serviced by a Malta QROPS which avoid the 25% exit tax, although you would be taxed on income in your country of retirement. You can also move to a QROPS in Guernsey if you move to Guernsey.
This leaves these key countries which still may be beneficial for a QROPS in Hong Kong:
Brunei, Canada, China, Indonesia, Kuwait, Malaysia, Mexico, Qatar, South Africa, South Korea, Switzerland, Thailand, UAE and Vietnam
High Income Tax Countries and QROPS in Hong Kong
A note on the Netherlands and other high tax countries. In countries with high tax rates such as the Netherlands, it may still be worth exploring a Hong Kong QROPS. Pension income over 33,715 EUR is taxed at 40% in the Netherlands and 52% once it gets over 66,421 EUR. Thus, it may be beneficial to pay a 25% “exit tax” and then pay zero tax at retirement thanks to the Netherlands-HK DTA rather than paying Dutch income tax rates. You can read more about QROPS for residents in the Netherlands here.
China has up to 40% income tax. Indonesia’s top tax rate is 30%. They are clamping down in South Africa on expats and tax is now up to 45%. South Korea taxes up to 38%, Thailand income tax is up to 35%. All these countries have double taxation agreements with Hong Kong that gives the taxation rights to Hong Kong. Currently, the tax in HK is zero on QROPS.
QROPS Hong Kong 2017 | QROPS Rules in Hong Kong
- 25% exit tax imposed by HMRC if you aren’t resident in Hong Kong for at least five years after pension transfer
- Zero tax for the following countries at retirement: Austria, Belgium, Brunei, Canada, China, Czech Republic, France, Guernsey, Hungary, Indonesia, Ireland, Jersey, Kuwait, Lichtenstein, Luxembourg, Malaysia, Malta, Mexico, Netherlands, Qatar, South Africa, South Korea, Switzerland, Thailand, UAE and Vietnam
- No tax on growth or death
- Choice of currency
- Choice of investment funds
- You can take a 25% tax-free cash lump sum at retirement at 55.
- No flexible drawdown: you can take up to 120% of GAD rates. So, let’s assume your pension pot is £200,000 and for argument’s sake, your income at drawdown is 5% or £10,000 per year. Under a QROPS, this could increase to £12,000 per year.
- You could also opt for a lower pension in order to try to accumulate a larger pension pot for later in life. This is our recommendation as most people underestimate how long they will live for and underestimate the costs of medical care and old age care
- A QROPS Hong Kong is a scheme registered with the Hong Kong Mandatory Provident Fund Schemes Authority as a Registered ORSO scheme and registered with HMRC as a QROPS
- ORSO schemes and MPF pension schemes are both retirement protection schemes set up for employees in Hong Kong.
Transferring Money to Hong Kong Which isn’t UK Tax Relived
You can avoid paying the 25% exit tax if you have a pension which does not hold UK tax relieved monies. In other words, any other cash, wealth, shares, mutual funds or offshore pension schemes can be transferred to a Hong Kong pension scheme for tax efficiency in order to take advantage of the strong Double Taxation Agreements in Hong Kong.
John is an expat living in South Africa. He has a UK pension pot of 400,000 GBP, an Isle of Man International Pension Plan (IPP) of 200,000 GBP, 100,000 GBP in UK stocks & shares and 500,000 GBP in cash in a UK bank account.
The UK pension pot may now be better off left in the UK to avoid the 25% exit tax into a QROPS, however, his other pension plans may face UK or South African taxation either on income, capital gains or tax on death. All your UK bank accounts & assets form part of your estate as regards to UK Inheritance Tax on death. If you have owned a permanent home in the UK at any time in the last 3 years of your life, you will be taxed on your home as well.
For people domiciled in the UK (e.g. you own a permanent home in the UK), which includes a large share of expatriates, IHT applies to worldwide assets, including property, bank accounts and investments.
You could transfer these other monies to a Qualifying Non-UK Pension Scheme. A QNUPS in Hong Kongprotects your assets from tax on growth and death. The Double Taxation Agreements can also protect these pension monies from income tax in your country of residence. The HK-SA DTA, for example, gives the taxation rights to Hong Kong.QROPS Hong Kong 2017 | UK Pension Transfers to Hong Kong by Richard Malpass