Taxable employment income includes any wages, salary, leave pay, fees, commissions, bonuses, gratuities, perquisites, and allowances, with certain specific exemptions. Set out below are the tax treatment of some common items.
Benefits in kind
If the employer has sole and primary liability for payment of the benefit, and no other person including the employee acts as surety in respect of the liability, the employee will generally not be taxed on such benefit, except in three situations:
- if the benefit is capable of being converted into money by the employee, or
- if the employer pays any amount in connection with the education of a child of an employee, or
- if the employer pays any amount in connection with the holiday journey of an employee.
In the first situation above, the taxable benefit is the second-hand value of the benefit obtained and in the second and third situations the taxable benefit is the cost to the employer of providing the benefit.
Housing that is provided or subsidised by an employer or its associated corporation is taxable. However, instead of taxing the amount of rents paid by the employer, the taxable amount is the rental value of the housing quarters in excess of the rents actually paid by the employee for the quarter (if any). The rental value of housing quarters provided by an employer is computed as a percentage of the employee’s assessable income less any allowable outgoings and expenses and depreciation allowances on capital expenditure incurred on machinery or plant, as follows:
|Type of accommodation
|Hotel, one bedroom
|Hotel, not more than two bedrooms
Where an employer refunds all or part of the rents paid by an employee, the treatment will be similar to cases in which the employer provides accommodations to the employee rent-free or at a reduced rent.
A cash allowance for housing is fully taxable where the employer has no control over how it is spent by the employee.
Any sums received by way of commutation of pension under a recognised occupational retirement scheme upon death, incapacity, retirement, terminal illness, or termination of service are exempt, with certain exceptions where there is a termination of service of less than ten years with an employer. Any sums received by way of commutation of pension under the Pensions Ordinance are also exempt.
Any sums received by an employee in connection to the employer's mandatory contributions to an MPF scheme are exempt from salaries tax. Sums related to the employer's voluntary contributions received from an MPF scheme upon death, incapacity, retirement, terminal illness, or termination of service of the employee are also exempt, with certain exceptions where there is a termination of service of less than ten years with an employer. Sums related to the employer's voluntary contributions received at times other than those mentioned above are taxable.
Sums related to employer's contributions received from a retirement scheme that is not a recognised occupational retirement scheme or an MPF scheme are subject to Hong Kong salaries tax.
Compensation for termination of employment that does not represent a payment for past, present, or future services is not taxable in general. Such payment should be distinguished from termination gratuities that relate to services previously rendered by the employee, which are therefore taxable. Taxable termination payments may be spread backward over the final three years of employment for Hong Kong salaries tax purposes.
Long service or severance payments made in accordance with the Employment Ordinance are not subject to Hong Kong salaries tax.
Payment in lieu of notice that is specified in an employment contract is taxable.
Gains from any employee share options are taxable when the options are exercised, assigned or released. There are specific provisions governing the taxation of employee stock options. Other employee share-based benefits (such as share awards) are also subject to Hong Kong salaries tax.
Business income is taxed under profits tax (see Profits tax in the Other taxes section for more information).
All capital gains derived by an individual are not subject to tax in Hong Kong (see Profits tax in the Other taxes section for more information).
Dividends derived by an individual are not subject to tax in Hong Kong.
Interest on bank deposits derived by an individual is not subject to tax in Hong Kong.
Rental income from immovable property in Hong Kong is taxed under property tax (see Property tax in the Other taxes section for more information).
Treatment of intellectual property
Neither royalty nor gain from sale of intellectual property is within the scope of Hong Kong salaries tax. Such income, however, may be taxable under profits tax (see Profits tax in the Other taxes section for more information).
Certain benefits in kind and retirement benefits received by employees are exempt from salaries tax (see Benefits in kind and Retirement benefits above for more information).
No more information is available on future rates.
Hybrid tax systems
Hong Kong does not have an applicable hybrid system.