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Q:
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What is the nature of “Type I” arrangements?
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A:
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Type I cases were referred to as arrangement to disguise employer/employee relationships to avoid salaries tax by the use of service companies.
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Q:
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Under what kinds of agreements the remuneration will be treated as being income derived from an employment of profit?
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A:
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Where a person (relevant person) carrying on a trade, profession or business, or prescribed activity, has entered into an agreement under which any remuneration for any services carried out under the agreement by an individual (relevant individual) for the relevant person is paid or credited to:
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1.
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A corporation controlled by
The relevant individual;
An associate or associates of the relevant individual; or
The relevant individual together with an associate or associates of the relevant individual;
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2.
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A trustee of a trust estate under which the relevant individual or an associate or associates of the relevant individual is a beneficiary, or are beneficiaries, as the case may be, under the trust; or
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3.
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A corporation controlled by such a trustee.
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Q:
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Is there any exception in related to the discussed above?
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A:
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Yes, the remuneration will not be treated as employment of profit once all of the specified criteria laid down are satisfied:
neither the agreement nor any related undertaking provides for any remuneration for any of those services to include or to be the provision of annual leave, passage allowance, sick leave, pension entitlements, medical payments or accommodation, or any similar benefit, or any benefit in lieu thereof;
The relevant individual also carries out the same or similar services for persons other than the person for whom they are carried out during the term of under the agreement or undertaking;
The performance by the relevant individual of any of those services is not subject to any control or supervision which is usual under an employment relationship;
The remuneration is not paid or credited periodically and calculated on a basis commonly used in relation to the payment or crediting and calculation of remuneration under a contract of employment;
The relevant person does not have the right to cause any of those services to be carried out in a manner, or for a reason, commonly provided for in relation to the dismissal of an employee under a contract of employment; and
The relevant individual is not held out to the public to be an officer or employee of the relevant person.
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Q:
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What if I am not sure the remuneration should be treated income from an employment?
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A:
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You may request for an advance ruling from the Inland Revenue Department (“IRD”). Such request should be in writing and support by the following material and information:
Copies of the agreement and any related undertaking.
If not otherwise apparent, full details of the remuneration payable under each agreement or undertaking, including fringe benefits, share awards, share options etc.
Copies of the respective organization charts of the relevant person and the service company.
A statement setting out the relevant individual’s i) duties and obligations in relation to the relevant person and the service company respectively; and ii) previous employment history with the relevant person or any associated party, if any.
A statement listing, together with supporting details, the specified criteria mentioned-above have been satisfied.
An explanation of why it is considered that the relevant individual did not in substance hold an office or employment of profit.
To facilitate consideration of the application, you should also answer several questions listed on IRD’s website.
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Q:
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How long does it takes to get feedback from IRD for the Advance Ruling request?
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A:
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Advance Ruling in letter form signed by the Commissioner or an authorised officer will be issued generally within 6 weeks of the date of receipt of the application, where the information referred to above is provided and not necessary for IRD to seek further information.
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FAQ
