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, or a trustee of a trust under which the individual or his associate is beneficiary, the remuneration is deemed to be employment income and assessed as such on that individual.

Such arrangement will come within the scope of Section 9A where:

(a)	there is an agreement;
(b)	the relevant person is carrying on a trade, a profession or business, or prescribed activity, is a party to the agreement;
(c)	services have been carried out under the agreement by the relevant individual for the relevant person or any other person; and
(d)	remuneration for the services has been paid or credited to:-

(1)     a corporation controlled by

i.	The relevant individual;
ii.	An associate or associates of the relevant individual; or
iii.	The relevant individual together with an associate or associates of the relevant individual;

(2)	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
(3)	a corporation controlled by such a trustee.

It is anticipated that Section 9A may affect 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:

(a)	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;
(b)	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;
(c)	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;
(d)	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;
(e)	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
(f)	the relevant individual is not held out to the public to be an officer or employee of the relevant person.

The above-mentioned points may be viewed as a somewhat mechanical means of ascertaining whether the operative provisions can be disregarded. However, the approach has been taken on the footing that where none of the indicators of employment covered by the specified criteria is present, it may be safely concluded, without examining the case in greater details, that in substance employment is not involved. In short, it is intended to be a pragmatic approach for the convenience of taxpayers and the Inland Revenue Department (“IRD”) alike.

It is also stipulated in Section 9A(4) that the Commissioner of IRD 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. In determining employment status, IRD may apply control test, integration test, economic reality test and mutuality of obligation to determine the question of contract of service versus contract for service.

Source：Hong Kong Inland Revenue Department’s website

- https://www.ird.gov.hk/eng/pdf/dipn25.pdf