Hong Kong

The gain realized on exercising or selling the share options granted by the employer is taxable. The gain taxable on exercising the options is the market value as at the date of the exercise less the price paid by the employee. Any gain or loss on sale of the shares after the exercise is ignored. So, if you don’t want to take the risk of fall in market value after you get the shares, sell them quickly. The gain taxable on selling the options is the net sales proceeds less the price paid by the employee for the options. If you don’t sell the options, they won’t be taxed. Remark: If the services, for which the share options are granted, are exempt from tax, then the related gain will be exempt too. At times, the exemption is computed by time apportionment. The taxability of the share options is irrespective of: […]

Section 12(1)(e) of Inland Revenue Ordinance states that a person can get a deduction for Self-Education Expenses. In brief, the qualifying conditions are: –  the expenses are paid to a recognized educational institute such as university, college, school, technical institute; and  the expenses include tuition and examination fee for a course of education, and the course of education is related to employment, whether present employment or future employment;  the fee of examination related to employment, whether present employment or future employment; and  the expenses are not reimbursed or are not to be reimbursed by employer or any other person. Only the actual amount paid in the year of assessment should be claimed. No spreading of the expenses throughout the period of the course is allowed. The maximum deduction is $40,000. The Revenue may allow deduction, by concession, for examination fee of a professional examination relevant to […]

Payment to an employee from an approved retirement scheme (not a MPF scheme): • The portion attributable to employee’s contribution is not taxable. • The portion attributable to the employer’s contribution is not taxable if it is paid upon death, incapacity or retirement. • The portion attributable to the employer’s contribution (the accrued benefit) is not taxable if it is paid on termination of employment with services for more than 120 months. For termination of employment with service less than 120 months, the exemption limit for the accrued benefit is called “proportionate benefit” which is defined as: the accrued benefit * no. of completed month of service / 120. Any excess over the limit is taxable. • If an employee withdraws a sum representing the employer’s contribution not because of termination of employment, retirement, death or incapacity, the sum will be wholly assessable. This happens where an employee withdraws all […]

Section 9(1)(a) of Inland Revenue Ordinance (IRO): any allowance, including rent allowance, from the employer is taxable in full (i.e. 100%). Section 9(1)(b) of IRO: rental value (normally computed at 10% on the relevant income) is assessed if free accommodation is provided by employer. Relevant income means the taxable income (excluding rent refund) in respect of the period of free accommodation. If the free accommodation is a room at a hotel, the rental-value rate will be 4% instead of 10%. If it consists of two rooms, the rate will be 8% instead. In practice, a room means one unit of residence (that is one room number) although there may be more than one bedroom in that “room”. Contract gratuity paid on termination of employment is not included in the relevant income for computation of rental value. But if there is no termination of employment, the gratuity will be added to […]

What is “Personal Assessment (PA)”? Under the Inland Revenue Ordinance, there are 3 types of direct taxes, namely, Salaries Tax, Profits Tax and Property Tax. Personal Assessment is not a tax levy. It is a method of computation of tax that may lighten the tax burden of certain taxpayers who are subject to Profits Tax and/or Property Tax and/or Salaries Tax. However, there is no merit for choosing PA if the relevant taxpayer only liable to pay Salaries Tax. Deductions and allowances under PA Sole-proprietor or partners of a business and property owners who receive rental income are assessed to Profits Tax and Property Tax respectively at standard rate. By choosing “Personal Assessment”, they may claim the following deductions and/or allowances on their income/profits and their tax liabilities will be computed at progressive rates applicable to Salaries Tax: 1. interest incurred on money borrowed for the purpose of producing property […]

Under Section 8(1) of the Inland Revenue Ordinance, pension arising in Hong Kong is chargeable to salaries tax. No definition of “pension” is made in IRO. So, the Literal Rule applies so that its ordinary meaning will be adopted. In short, pension is a periodical payment to a person in consideration of his past services. Section 9(3) extends the charge to cover a pension which is voluntary or is capable of being discontinued. This provision was to overcome the decision in Stedeford v. Beloe 16 TC 505 in which pension was held to be excluding voluntary payments. Like employment income, only the pension arising in or derived from Hong Kong is assessable. This follows that we have to determine the location of the source of the pension. From case law, the location of the fund from which the pension is paid is the decisive factor in determining whether the pension […]

A married person may claim the allowance if his spouse does not have taxable salary income. Marriage means a lawful marriage. Full allowance is granted in the year of marriage. No apportionment of the allowance is required. If his spouse has assessable income, the taxpayer cannot get the allowance unless both spouses elect to have their income jointly assessed in a single tax bill. Election for joint assessment must be signed by both the husband and wife, within one year after the end of the year of assessment. If either spouse gets a Salaries Tax assessment after this time limit, then the time limit will be extended to 1 month after the assessment becoming final and conclusive (i.e. 2 months from the date of assessment in case of no objection). It is advisable for the couple to elect for joint assessment if either spouse has low taxable income. This is […]

Section 9(1)(a) of the Inland Revenue Ordinance (IRO) defines taxable emoluments to include: salary, wages, leave pay, fee, commission, bonus, gratuity, perquisite or allowance whether they are derived from employer. Special provisions are laid down in the IRO to tax special perks such as subsidized accommodation, retirement benefits, share options, holiday benefits and children’s education subsidies. Under Section 9, all kinds of cash allowances arising from an employment are wholly taxable. They include housing allowance, living-cost allowance, transportation allowance, baggage allowances, medical allowance, clothing allowances, tips…etc. So, to make the benefits non-taxable, the employer should be made solely liable to pay the benefits — in that case, these benefits will be inconvertible into cash or have no cash value. Caution: Such arrangement does not work for subsidized accommodation, retirement benefits, share options, holiday benefits and children’s education subsidies because they are subject to special provisions of the IRO. Only emoluments […]

Section 26E of Inland Revenue Ordinance states that the interest paid on loan for purchase of residence is tax deductible. In brief, the qualifying conditions are: –  the person is the property owner; and  the property is a ratable unit in Hong Kong; and  the property is used as the person’s residence; and  the loan is subject to mortgage from a recognized lender such as bank. The interest on loan for purchase of a car park space in the same development of the home is also deductible. It is added to the interest on the loan for the purchase of the home for the purpose of interest deduction. There is a limit on the interest deduction. The current limit is $100,000. If the deduction is below the limit, the unused part cannot be carried forward. A person can only get the deduction for a total of […]

From 2003/2004 onwards, holiday benefits granted by employers are assessable under Section 9(2A) (a) of Inland Revenue Ordinance. The assessable amount is the actual cost incurred by the employer in providing the benefit to the employee and / or his family. The law provides that the charge of tax is irrespective of the following factors: (a) Whether or not the benefit is convertible into cash, (b) Whether the employer of the employee has the primary liability to pay the benefit, (c) Whether or not the benefit will add additional cost to the employer, (d) Whether or not the benefit will cause opportunity cost to the employer (for example the lost revenue arising from the sale of discounted-price air tickets by air-liner employer to employee). The payment for the relocation of an employee and his family to Hong Kong on commencement of employment or for the relocation of an employee out […]