Q and A
Salaries Tax and Personal Assessment (PA)
Mandatory Provident Fund Scheme (MPF) / Recognized Occupational Retirement Scheme (RORS)
- Q: How to calculate my mandatory contributions per year and allowable deductions
if my monthly income is $20000?
- A: Your mandatory contributions per year will be $12000 ($20000 X 12 X 5%). Your allowable deductions will be $12000 as it is less than the maximum deduction of $17500 in 2014/15 so the amount could be fully tax deductible.
- Q: What if my mandatory contribution is $12000, and I contribute $3000 per year as
voluntary contribution, how much of my contribution could be tax deductible?
- A: Only mandatory contribution is eligible for tax reduction. Regardless the amount of your voluntary contribution, only $12000 is subject to tax reduction.
- Q: How to calculate my mandatory contributions per year and allowable deductions if my monthly income is $40000?
- A: The maximum relevant income level is $30000 from June 2014 onwards. You only need to contribute $1500 per month as mandatory contribution even if your monthly income is $30000 or above.
- Q: What if my income fluctuates over time with income of some months fall below
- A: If the monthly income falls below the minimum income level, you are not required to make compulsory contribution in those months. You will just need to make mandatory contribution in the months you receive income greater than the minimum income level.
- Q: What if I have two employments and two MPFS?
- A: You have to make mandatory contributions to each employment as long as the income is above the minimum income level. The maximum amount of tax deduction is $17500 in 2014/15 regardless the amount of your contribution. From 2015/16 onwards, the maximum amount would increase to $18000.
- Q: What if I have multiple employments and one MPFS?
- A: You have to make mandatory contributions to the employment as long as the income is above the minimum income level. The maximum amount of tax deduction is $17500 in 2014/15 regardless the amount of your contribution. From 2015/16 onwards, the maximum amount would increase to $18000.
- Q: If I am a director, and my salary is $30000 per month, how much should I contribute to MPFS per year?
- A: It depends. In the year of assessment of June 2014 onwards, if you are hired under contract of employment, then you are compulsory to give $18000 ($1500 X 12) as mandatory contribution. The amount of $18000 is tax deductible from 2015/16 onwards. In 2014/15, only $17500 is tax deductible. However, if you receive $18000 as a director’s fee and act as an office holder, you are not required to join MPFS and no mandatory contribution is needed.
- Q: If I am a single business owner, and the profits of my business is $1000000, how
much is my mandatory contribution and amount of tax reduction?
- A: Your mandatory contribution is $18000 since the maximum relevant income level is $30000 per month. The amount of $18000 is tax deductible from 2015/16 onwards. In 2014/15, only $17500 is tax deductible.
- Q: If I am an owner of multiple businesses, and the aggregate income for all the business in 2014/15 is $50000, how much is my mandatory contribution and amount of tax reduction?
- A: Your mandatory contribution is $18000 since the maximum relevant income level is $30000 per month. The amount of $18000 is tax deductible from 2015/16 onwards. In 2014/15, only $17500 is tax deductible.
- Q: If I am the spouse of the sole proprietor, and I assist my spouse in running the business, my mandatory contribution is $10000, how much is my tax reduction?
- A: You would not be granted any tax reduction as stated in the Inland Revenue Ordinance. Only the mandatory contribution of the proprietor is liable to tax reduction.
- Q: If I receive salary as an employee and be the owner of a business simultaneously, and my salaries is $120000 in the year, and the profits of my business is $500000, how much is my mandatory contribution and tax reduction?
- A: The mandatory contribution for your salary is $6000 ($120000 X 5%) and $18000 ($1500 X 12) for your own business. Under the maximum deduction requirement, the tax reduction would be $17500 in total with $6000 for salary and $11500 for own business in 2014/15 and $18000 in total with $6000 for salary and $12000 for own business in 2015/16 onwards.
- Q: If I opt for RORS, and my contribution to it is $18000, and under the MPFS, my required payment for it is $9000, how much can I have my tax reduced?
- A: In this case, you will have your tax reduction of $9000. It is determined by the lesser amount of the required payment for MPFS or the actual payment you make for RORS.
- Q: If I opt for RORS, and my contribution to it is $5400, and under the MPFS, my required payment for it is $9000, how much can I have my tax reduced?
- A: In this case, you will have your tax reduction of $5400. It is determined by the lesser amount of the required payment for MPFS or the actual payment you make for RORS.
Expat working in Hong Kong
- Q: I was born in Hong Kong, but have migrated to the US. If my employer, an American firm, sent me to Hong Kong branch to act as a full-time salesperson, how would I be taxed?
- A: Working in Hong Kong as a full time employee means you are under Hong Kong employment. Thus, you would be taxed for your assessable income in Hong Kong as a local employee. There is no tax relief regarding your citizenship or nationality or residence.
- Q: I was a trainee account for two years in Hong Kong branch of an international corporation. Occasionally, I have to make business trips to Mainland China. How should I be taxed?
- A: Working in Hong Kong is equivalent to working under Hong Kong employment. It requires you to pay salaries tax in Hong Kong as a local employee. However, the Assessor may consider the days you spent in Mainland China and allow you to claim double taxation relief if you have paid PRC tax in China.
- Q: I am assigned to work in Asia most of the time in a year. I have to travel to five big cities in South East Asia, including Hong Kong, on business purpose. How would I be taxed?
- A: You would be taxed on a days-in-days-out basis. You would be required to pay salaries tax and provisional salaries tax and report your full annual income and claim exemption.
- You are advised to ensure all of your income is reported for the year of assessment. Four details of information is needed for tax return, including full particulars of your employer, a copy of related employment contract, the information of your remuneration and the travel schedule of your own.
- The calculation of your assessable income on a days-in-days-out basis would be: Full income of the year of assessment X (No. of days in Hong Kong / 365 days). For instance, if your annual income is $100000, and you stay in Hong Kong for 165 days during the year of assessment, then your assessable income for salaries tax in Hong Kong would be equal to $45205.47 ($100000 X (165days / 365days)).
- Leave pay attributable in Hong Kong is also subject to tax liability. It should be computed as: Total leave days X (Business days in Hong Kong / Total business days). The business days in Hong Kong plus business days outside Hong Kong plus leave days should be equal to 365 or 366 days.
- Q: I am the marketing manager in a Singapore firm. I came to Hong Kong and bought goods in a total of 60 days in the year of assessment. Is my income subject to salaries tax in Hong Kong?
- A: No, because your visit is with the 60 days limit, so you are not required to pay salaries tax in Hong Kong. However, if you depart one day later, that is staying in Hong Kong for 61 days, then you r income is subject to salaries tax in Hong Kong on a days-in-days-out basis.
- Q: For a research project, I have been working in Hong Kong from 1 May 2013 to 1 September 2013. Do I have to pay salaries tax? Am I eligible for enjoying allowance for my spouse and my child?
- A: You have to pay salaries tax as you have rendered service in Hong Kong for 124 days. Your income would be calculated as: Full income of your own X (124 days/365 days). Your special allowance for staying in Hong Kong is also taxable. However, you are eligible for married person’s allowance and child allowance even if they did not come to Hong Kong with you.
First time payer of Salaries Tax
- Q: How and how often do I report my income to Inland Revenue Department?
- A: Salaries tax is assessed by the year of assessment lasting from 1 April to 31 March of the next year. If you started working on 22 February 2014, then you have to report your income from 22 February 2014 to 31 March 2014 for the year of assessment of 2013/14. If you started working on 13 September 2014, then you have to report your income from 13 September 2014 to 31 March 2015 for the year of assessment of 2014/15.
- If your income falls below the minimum income level, that $7100 from November 2013 onwards, you are not required to pay salaries tax unless you receive a tax return, which must be reported in time, from Inland Revenue Department.
- Under normal circumstances, you are given a month to complete your tax return. You may be required to pay Provisional Salaries Tax.
- Q: Do I have to apply to the Inland Revenue Department for a tax return to report my income from employment?
- A: Under normal circumstances, you do not have to apply to IRD as an employee. Your employer must notify your chargeability 3 months after employing you to the IRD and a copy to you. However, if you are liable to salaries tax, and you do not receive any tax return, you will then have to notify chargeability (See the answers in the next question).
- Q: If I am liable to salaries tax, but I do not receive any tax return, do I have to write to the Inland Revenue Department?
- A: Yes. If you are liable to salaries tax in the year of assessment, you have to report your chargeability by the 31 July of the year following that year of assessment. For instance, you started working on 22 February 2014, so you are subject to salaries tax in the year of assessment of 2013/14. If you do not receive any tax return, then you have to report your chargeability to the IRD by 31 July 2014. If you started working on 13 September 2014, so you are subject to salaries tax in the year of assessment of 2014/15. If you do not receive any tax return, then you have to report your chargeability to the IRD by 31 July 2015.
- Your notification should be in written form including your personal particulars, the name, address, nature of business and business registration number, your employment income for the period to 31 March of the year, other sources of income, previous tax file number with IRD.
- The company is advised to keep track of all the data about the stock options granted to ensure the information is correct.
- Q: When will the Inland Revenue Department send a first time taxpayer a tax return?
- A: The department will send the tax return to regular taxpayer on the first working day of May. However, it takes time to create a tax file for the first time taxpayer.
- Thus, there is no fixed date of issuing the tax return to the first time taxpayer. Under normal circumstances, the department will issue the tax return to them within 5 months after receiving either the notification by your employer or your notification of your chargeability.
- Q: When I report my income on the tax return, do I need to send in any documents of my employment income as a proof?
- A: No. However, if you wish to be exempt from paying tax for any special reason, like on the grounds that you are under non-Hong Kong employment, then you have to send documents for verification.
- Still, you are recommended to keep your documents for 6 years after the relevant year of assessment.
- Q: What should I do when my employer does not provide me with a copy of notice to IRD of my employment income in time so that I cannot complete my tax return in a month?
- A: You should submit your tax return on time. Even though you may not have the full records of your employment income, you should estimate it reasonably as possible as you can.
- When you receive the copy of Employer’s Return of your remuneration from your employer, you shall then cross-check the figures and make sure the amount on your report of income is correct.
- In case of variations, you should write to the department for making any amendments. In addition, if you have changed employment in between, you should double-check the number with care.
- IMPORTANT. Oversight is not an acceptable excuse for any underestimation of your income. Heavy penalties would be levied on taxpayers fails to report the correct amount of income of his or her own.
- Q: Do I have to keep records for my income and claimable expenses?
- A: Yes, you are advised to keep those records for 6 years after the relevant year of assessment. You are obligated to show your receipts if your case is being reviewed. If your income is over-assessed, you may write to the department for your objection within a month after the date of notice of assessment. In that case, you will need to offer receipts as your supporting argument. Moreover, if you wish to claim any tax reductions, you have to provide receipts for your claimable expenses if required.
Provision of a Place of Residence to the Employee
- Q: If my annual income from salary is $3,000,000, and I resided in a room in hotel from 1 April 2014 to 31 May 2014, then moved to a flat from 1 June 2014 to 31 March 2015. How much is my rental value?
- A: You rental value would be $270,000 ([($3,000,000/12 X 2 X 4%) + ($3,000,000/12 X 10 X 10%)]).
- Q: If my monthly income is $55,000, and lived in a single-room in a boarding house, and I claimed deductions for annual subscription to the Hong Kong Institution of Engineers of $3,000, and self-education expenses of $25,000, then how much is my rental value?
- A: Your rental value would be $26,280 ([($55,000 X 12 – 3,000) X 4%]).
- Q: If I work in an overseas company but stay in Hong Kong for 140 days, and my annual earnings is $660,000, and I live in a flat provided by my employer and I have to pay $1,500 for monthly rental, how much is my rental value?
- A: Your taxable income should be calculated on the day-in-day-out basis that is $253,150 ([($660,000 X 140/365)]). Your rental income would be $7,315 ([($25,3150 X 10%) – (1,500 X 12)]).
- Q: If my monthly income is $45000, and monthly accommodation benefit is $8,000, and I occupied a hotel room with two rooms, and my monthly rental payment is $5,000, how should my rental value be assessed?
- A: Since you are required to pay $5,000 as the rental only, the remaining $3,000 is considered as your cash allowance. Thus, your annual income shall be $576,000 ([($45,000 X 12) + ($3,000 X 12)]). The rental value of yours is $46,080 ($576,000 X 8%).
Filing Tax Return correctly
- Q: What should I do if I change employment during the year?
- A: You should report all income from previous and current employment in the year.
- Q: What if I have income from employment including salary and other types of income?
- A: You should report all types of income, comprising bonus, commission, tips from the third parties and quarters provided.
- Q: What am I supposed to do if I have income from employment including special taxable income?
- A: You should declare all taxable special items in the grand total, such as income from overseas corporations connected with Hong Kong employment, taxable termination payments or share option gains.
- Q: What should I do if the amount of my employment income is adjusted after I have filed the tax return?
- A: You should notify the adjusted figures of income to Inland Revenue Department in written form as soon as possible.
- Q: What if I have multiple employments and/or offices?
- A: You shall declare all full-time and part-time income from all employments and offices.
- Q: How should I provide my employment income information?
- A: You must clearly state all income details of each and every employment and office in your tax return. Attaching a copy of your employer’s tax return or requesting the authority to refer to the employer’s data will be unacceptable.
Taxation on benefits of stocks awards and share options
- Case 1: On 14 December 2014, Mr. Fung was granted 1000 shares of his company. On that day, the market price is $10 per share. Mr. Fung ended the employment on 28 February 2015.
- Mr. Fung’s company should report it in item “share award of $10000” ($10 X 1000 shares) in the year of assessment 2014/15.
- Case 2: Following situation 1. However, Mr. Fung sold all the shares at $12 before he leaves the company.
- Mr. Fung’s company should report it in item “share award of $10000” ($10 X 1000 shares) in the year of assessment 2014/15. No report of the gains from the sale of shares is required as that amount is not liable to tax.
- Case 3: On 25 November 2014, Mr. Chan bought 500 shares of Company B from his employer, Company A, at $6 per share. On that day, the market price of shares from Company B is $10 per share. Company B is the parent company of Company A.
- Company A should report it in item “share award” of $2000 [(500 shares X $(10 – 6))] for the year of assessment 2014/15.
- Case 4: On 13 September 2014, the marketing manager is granted a right to acquire 200 shares of Company A at an exercise price of $30 per share within 2 years from 14 December 2014. The marketing manager exercised the option on 26 December 2014. The market price of that day was $55 per share.
- The marketing manager is subject to salaries tax and his gains would be recorded as share option gain of $5000 [(200 shares X ($55 – 30))] in his assessable income in the year of assessment 2014/15. In addition, his or her employer should also record the $5000 as “share option gain” in the Employer’s Return.
- Case 5: Company B is an overseas listed company and Company C is a Hong Kong subsidiary company of it. On 13 September 2014, Mr. Wu, the marketing manager of Company C, was present in Hong Kong and was granted a share option to acquire 700 shares of Company B at an exercise price of US$40 per share within 3 years from 31 September 2014. He exercised his option and acquired 300 shares at market price of $60 on 13 October 2014. Then, he exercised his option and acquired 400 shares at market price of $70 on 31 October 2015.
- Mr. Wu has enjoyed a gain of $46800 [(300 shares X ($60-40) X 7.8] in the year of assessment of 2013/14 and $93600 [400 shares X ($70-40) X 7.8] in the year of assessment 2014/15 as “share option gain”. The amount of gain should be reported in Hong Kong Dollars. Mr. Wu and his employer should report the gain of $46800 and $93600 as “share option gain in the Employer’s Return in the year of 2013/14 and 2014/15 respectively.
- Case 6: Mr. Wong is allowed to assign his share option to his colleagues. On 26 June 2014, he assigned his option to his colleague, Ms. So, for $20,000.
- In this case, Mr. Wong should include the $20000 in his assessable income in the year of assessment 2014/15.
- Case 7: If company D became a private corporation and on 26 July 2014, it paid Ms. Leung $17,000 for releasing the share option given to her, what should it be taxed?
- Ms. Leung should include this $17000 in her assessable income as “share option gain” in the year of assessment 2014/15.
Income of Deceased Taxpayers and Rental Income derived from Deceased Properties owner(s)
- (1) Case of “sole owner of property”: Sole owner Mr. Liu passed away on 13 March 2014, the department opened a file to manage all the tax matters about the rental income received after his death. In the year of death, that is in the year assessment 2013/14, two tax returns will be issued to Ms. Wan who is “the Executrix of the Estate of the late Mr. Liu”.
- If the deceased is the sole owner of the property, then the received or receivable rental income would be counted as part of the deceased’s estate. Nonetheless, the rental income after his or her death goes to the beneficiaries. IF the beneficiary is not yet confirmed, the rental income then is subject to property tax.
- Ms. Wan should report the rental income from 1 April 2013 to 13 March 2014 in the first tax return and rental income from 14 March 2014 to 31 March 2014 in the second tax return. If Ms. Wan has opted for personal assessment for Mr. Liu, then the rental income from 1 April 2013 to 13 March 2014 will be part of the deceased’s other income and that tax liability will be assessed under personal assessment. If the beneficiary is selected, the rental income from 14 March 2014 to 31 March 2014 is considered to be the income of the beneficiary. The related portion of the property tax paid is perceived as the tax paid by the beneficiary.
- (2) Case of “joint owners of property”: Referring to case 1, Mr. Liu and Ms. Wan were the joint owners of a property.
- In case the death of one of the joint owners of a property, his or her share of ownership will be distributed to other existing owners equally. The department will open a new file for the new ownership of the property for the remaining owners.
- If Ms. Wan selects personal assessment, the rental income Mr. Liu received from 1 April 2013 to 13 March 2014 will be calculated in the personal assessment tax payable. If she does not choose personal assessment, then she does not need to supply any information in properties jointly owned by Mr. Liu in his tax return— individuals.
- (3) Case of “owners of property as tenants-in-common”: Referring to case 2, The distribution of shares of their jointly owned property was unequal, Ms. Wan was the dominate owner.
- If the share is not equally distributed among the owners, then if one of them is deceased, the share of that ownership will not be transferred to the remaining owners automatically. Instead, his share of ownership will be directed according to his or her last will. Yet, if the deceased dies intestate, the ownership will be managed under Intestates’ Estates Ordinance. The authority will open a new file for the new ownership to cope with the tax matters.