Salary Tax

HKICPA Module 14 Salary Tax，Notes index，包括：Office、Employment、Employment Exemption、Pension长期俸禄。

Salary tax (Unit 1)

• [s.8(1)] Scope of Charge - P.3
  • Salaries tax shall be charged for each year of assessment on every person in respect of his income arising in or derived from Hong Kong from the the following sources:
    • Office
    • Employment
    • Pension
• Office
  • [Great Western Railway Co v Bater]
    • Definition: Office is a subsiting permanent substantive position which has an existence independent from the person who fills it and which goes on and is filled in succession 顶替 by successive holders (e.g. Director, Company secretary) - Necessary position specified in Company Ordinance
  • Source Rule [MiMillan v Guest]
    • Place where the central management control of the company is exercised
      • e.g. Director's meeting in HK
• Employment
  • Employment (Sal Tax) vs Profession (Profit Tax) [DIPN 25 Appendix B]
    • Control
    • Integration - Identity of the person providing the services
    • Economic Reality - undertake financial risk?
    • Mutuality of Obligation 相互责任
  • Hong Kong vs Non-Hong Kong Employment Sourse Rule [CIR v Goepfert] & [DIPN 10]
    • 1. Place where the contract is negotiated, concluded and enforceable
    • 2. Residence of employer Place of central management
    • 3. Place where the remuneration is paid
    • HK EMP?
      • Time apportionment ONLY applied to Non-HK EMP
      • HK EMP.
        • 100% taxable unless exemptions
      • Non-HK EMP
        • [s.8(1A)(a)] Taxable on income derived from services rendered in HK, including leave pay attributable to such services.
          • Time-in-time-out basis (Mid-night rule)
• Employment Exemption
  • [s.8(1B)] 100% exempt if visit HK 访港 for not more than 60 days
    • Visitor = work and holiday in HK Part of a day is a day basis ( 60 days rule)
    • Home base ≠ HK AND Work base ≠ HK
  • [s.8(1A)(b)] 100% exempt if rendered all services outside HK
  • [s.8(1AB)] HK resident services o/s HK as a visiting teacher / researcher + DTA exemption available + o/s tax been paid [s.8(1A)(b)] applicable
  • If tax paid in DTA territories Not applicable to [s.8(1A)(c) Tax credit be granted in accordance with [DTA article]
  • If tax paid in Non-DTA territories [s.8(1A)(c)] services rendered o/s HK + foreign tax been paid The portion already been taxed be exempt
• Pension 长期俸禄
  • An annuity or other recurring periodic payments for consideration of past services
  • Lump sum retirement fund
    • EXEMPT for tax
  • Source Rule
    • Place where the pension fund is managed and controlled

Salary tax (Unit 2 & 3)

• [s.8(2)] General Exemption (Unit 2) - P.7
  • [s.8(2)(b)] 外交使节 Official emoluments of consuls 领事执政官, vice-consuls and persons employed on the staff of any consulate, who are subjects or citizens of the state which they represents.
    • Hong Kong civil servants Income of Hong Kong civil servants is chargeable to salaries tax irrespective of where the services are rendered. ([s.8(1B) and s.8(1A)(b)] not applicable)
  • [s.8(2)(c), (ca)-(cc)
    • Refer to Unit 5-5 (MPF/RORS)
  • [s.8(2)(d)-(fa)] 中央派驻-永久服务 The emoluments payable by the Central People's Government to members of the Chinese People's Liberation Army, and to persons in the permanent service of that Government in Hong Kong in respect of their offices under that Government. The Hong Kong War Memorial Pensions 香港战争纪念抚恤金 and additional benefits paid under the Hong Kong War Memorial Pensions Ordinance (Cap. 386)
  • [s.8(2)(g)] 奖学金 Any amount arising from a scholarship, exhibition, bursary, or other similar educational endowment held by that person where he is receiving full time instruction at a university, college, school, or other similar education establishment.
  • [s.8(2)(h)] 中央派驻-临时服务 The emoluments payable by the Central People's Government to persons in the temporary service of that Government who are in the opinion of the Commissioner serving in Hong Kong on Mainland of China
  • [s.8(2)(i)] 离婚人士-赡养费 Any amount received by way of periodical payments in the nature of alimony 赡养费/生活费 or maintenance by a person from his or her spouser or former spouse
  • [s.8(2)(j)] Seafarers 航海人员 and aircrew 航空人员 Exempted if presented in Hong Kong for not more than (a) A total of 60 days in the basis period; AND (b) A total of 120 days for two consecutive years
  • [s.8(2)(k)] Salary or remuneration withdrawn from a business of which the taxpayer or his spouse is a proprietor or partner.
• [s.8 DTA Article 14, 15 & 21] DTAs related to Sal. Tax (Unit 3) - P.9
  • [DTA Article 14] Income from Employment Salaries, wages and other similar remuneration derived by a resident of One Side in respect of an employment shall be taxable only in that Side unless the employment is exercised in the Other Side.
    • Exemption Rule In the Other Side NOT exceeding 183 days + in ANY 12-month period AND remuneration is paid by ER who is NOT a resident of the Other Side AND Remuneration is NOT borne 承担 by a Permanent Establishment (PE) 常设机构 which the ER has in the Other Side.
  • [DAT Article 15] Directors' Fee As a member of the board of directors which is a resident of the Other Side may be taxed in Other Side (i.e. 对岸要你交你就要交)
  • [DTA Ariticle 21] Method for Elimination of Double Taxation Any tax paid in the Mainland in respect of that income shall be allowed as a credit against the Hong Kong tax payable on that income.
    • Example of Tax credit relief - P.11

Salary tax (Unit 4 & 5)

• [s.11D] Timing Ascertainment of Assessable income (Unit 4) - P.12
  • [s.11D] Income accrued to a person when he entitled to clam payment thereof
    • [DIPN 39 Para 52] Cryptocurrency Same salaries tax treatment At market value at the time of accrual
  • [s.11D(a)] Income accrued but not yet received - Deferrd until it is received
  • [s.11D(b)] Payment received after cessation 离职 of employment - Deemed to be received on last day of employment
• [s.9(1)] Assessable Income (Unit 5) - P.13
  • [s.9(1)(a)] General rule Any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite, or allowance + Whether derive from employer or others + EXCEPT primary liability of the employer
    • Perquisite: cash or benefit-in-kind *from employment; or *from past/present/future service
  • [s.9(2A)]
    • [s.9(2A)(a)] Any benefit capable of being converted into money by the recipient.
    • [s.9(2A)(b)] Child Education Benefit Any amount paid by an ER in connection with the education of a child of an EE + irrespective of who is liable to expenses
    • [s.9(2A)(c)] Holiday Journel Benefit Any amount paid by an ER in connection with a holiday journey.
    • [DIPN 16] Other Fringe 次要的 Benefits - P.16
      • Company car/boat (convertible into cash?)
      • Recreational Facilities / Holiday Home (convertible into cash?)
      • Payment of utilities by ER (who is primarily liable to it?)
      • Loan from ER (convertible into cash?)
      • Credit cards (what is the purpose?)
      • Club benefit (who is primarily liable to it?)\
  • [s.9(a)(aa)-(ae)] Retirement Benefit 退休福利 (MPF, ORSO, etc.) - P.17 - Exempt - Proportionate Benefit Rule (applied in "Termination of service") - Assessable in full
  • [s.9(1)(b)-(c)] Accommodation Benefits 住所福利 - P.18 * Rental value (RV) - 4% / 8% / 10% * Probided by ER or an associated company * Rent suffered by EE - deductible in RV * Basis of calculation (excl. share option under s.9(1)(d)) =s.9(1)(a) - s.12(1)(a)&(b) - lump sum upon retirement or termination of employment
    • Rental Refund - taxable on RV Rental Allowance - assessable in full
  • [s.9(1)(d)] Share/Stock Option * Exercise / assignment 转让 / release * Right to acquire shares in any corporation (not necessary ER)
    • Unconditional Share Option (without vesting period) - date of grant would determine the source
    • Conditional Share Option (with vesting period) - the taxable services performed during vesting period would determine the source
    • Tax treatment * Exercise: MV at exercise date - consid. paid * Assignment or Release: consid. received - consid paid
    • Notional Exercise 1. before his departure - deemed to be exercise within 7 days prior to election 2. after his departure - election can be made within 3 months - deemed to be exercised on date of departure
  • [DIPN 38] Share/Stock Award * at grant or upon vest * whether dividend taxable? * discount for sales restriction 禁售期

Salary tax (Unit 6-7)

• Pro-forma (Unit 6) - P.25
  • [s.9] Assessable income
  • Less: [s.12] Allowable expenses
  • Net assessable income
  • Less: [s.26] Concessionary deductions
  • Less: Personal allowances
  • Net chargeable income
  • Lower of Standard rate vs Progressive rate
• Allowable Deductions (Unit 7) - P.27
  • [s.12(1)(a)] Allowable outgoings and expenses All outgoing and expenses other than expenses of a domestic or private nature and capital expenditure, wholly, exclusively and necessarily incurred in the production of assessable income are allowable.
  • [s.12(1)(b)] Depreciation allowances Depreciation allowances on machinery or plant essentially used by a taxpayer in the production of assessable income are allowable
  • [DIPN 9] Examples of allowable deductions
    • Clothing
    • Commission payment for services
    • Entertainment expenses
    • Payments to assistant
    • Subscription to professional institution 公会会费
    • Travelling expenses
    • Flat rate deductions for certain employment
  • [s.12(1)(e)] Expenses of self-education Fees, including tuition and exammination fees, of a prescribed course organized by a course provider (e.g. university or college or institute registered under Education Ordinance); or Fees in respect of an examination set by education provider, or by a trade, professional or business association for its members, and undertaken by the taxpayer to gain or maintain qualifications for use in any employment.

Salary tax

• Personal Allowances (Unit 9) - P.38
  • Basic Allowance (BA) $132,000 for ALL taxpayer]
  • Married Person's Allowance (MPA) $264,000
    • 1. Married
    • 2. Spouse no assessable income; OR Joint assessment elected; OR Personal assessment elected jointly
  • either-or
  • Dependent Parent/Grandparent Allowance (DPA/DGA) - Case 1 $50,000 / Case 2 $25,000 for each elder
    • 1. Parent/grandparent ordinary resident in HK
    • 2. Maintain Reside together continuous period ≥ 6mths; OR Contributes ≥ $12,000 in money
    • 3. Age Case 1 - ≥ 60: OR ＜ 60 + eligible to GDAS Case 2 - 55-60 + not eligible to GDAS
  • Additional Dependent Parent/Grandparent Allowance (ADPA/ADGA) - Case 1 $50,000 / Case 2 $25,000 for each elder
    • 1. DPA+ADPA
    • 2. Reside together continuously throughout the year of assessment
  • Child Allowance (CA) $120,000 for each child
    • 1. Maintain Reside together continuous period ≥ 6mths; OR Contributes ≥ $12,000 in money
    • 2. Unmarried
    • 3. Age ＜ 18; OR 18-25 + full time edu; OR; ＞18 + incapacitated for work
    • 4. All children granted to ONE spouse
  • Additional Child Allowance (ACA) $120,000 for each child
    • 1. CA+ACA
    • 2. Born during the year
  • Dependent brother or dependent sister allowance (DBSA) $37,500 for each dependent
    • 1. Maintain Reside together continuous period ≥ 6mths; OR Contributes ≥ $12,000 in money Sole or predominant care
    • 2. Unmarried
    • 3. Age ＜ 18; OR 18-25 + full time edu; OR; ＞18 + incapacitated for work
  • Single Parent Allowance (SPA) $132,000 in total
    • 1. CA+SPA
    • 2. Sole or predominant care
  • Disabled Dependent Allowance (DDA) $75,000 for each dependent
    • 1. Eligible to Goverment's Disability Allowance Scheme (GDAS) 伤残津贴计划
    • 2. Dependent Spouse: MPA + DDA Parent: DPA/ERC + DDA Grandparent: DGA/ERC + DDA Child: CA + DDA Brother or sister: DBSA + DDA
  • Personal Disability Allowance (PDA) $75,000 for taxpayer
    • Eligible to GDAS
• Miscellaneous (Unit 10) - P.42
  • [s.11D(b)(i)] Lump sum payment on cessation of employment or deferred pay *Qualified sum (incl. gratuity 约满酬金) upon retirement OR termination of office/employment *Related back for period shorter of (1) Actual period of employment: OR (2) 36 months from eariler of last employment day or payment entitled day
  • [s.10(2)] Husband and wife
    • - Sparate assessment or Joint assessement
    • Time limit is later of - Following year of assessment - 1 month after final and conclusive
• Concessionary Deductions (Unit 8) - P.30
  • [s.26C] Approved Charitable Donations (ACD) * ≤ 35% * ([s.9]-[s.12(1)(a)]-[s.12(1)(b)])
    • 1. Charitable institutions approved by IRD
    • 2. Donation in money
  • [s.26D] Elderly Residential Care Expenses (ERC) * Maximum $100K for each elderly residence
    • 1. Age ≥ 60 OR eligible GDAS
    • 2. Expenses paid to residential care home 护理安老院 licensed under HK law
  • [s.26E] Home Loan Interest (HLI) * Maximum $100K for each property *20 years (claim 20 times only)
    • 1. Principal place of residence situated in HK
    • 2. Home loan applied for acquisition of a dwelling
    • 3. Home loan secured by a mortgage
  • [s.26G] MPF/RORS contribution
    • Lower of 3 amounts - $18K - Amount EE actually contributed - Amount mandatory contribute (MC)EE required to pay
  • [s.26K] Qualifying Voluntary Health Insurance Scheme Premium (VHIS) * Maximum $8K for each insured person 受保人
    • Insured person * Spouse * Parent or grandparent ≥ 55 OR ＜ 55 + eligible to GDAS * Unmarried child or sibling ＜ 18; OR 18-25 + full time edu; OR ≥ 18 + incapacitated for work
  • [s.26S] MPF Voluntary Contribution (TVC) * Maximum $60K (together with QAP)
    • Paid into a TVC Account
  • [s.26O] Qualifying Annuity Premiums (QAP) * Maximum $60K (together with TVC)
    • 1. Annuitant 年金受领者 = taxpayer or spouse
    • 2. Annuitant hold a HKID card