Normally, housing benefits enjoyed by directors/employees from their employer or the employer’s affiliated companies will be subject to salaries tax in Hong Kong, unless the director/employee is able to establish the claim for their offshore/exemption income. Nevertheless, there may be several exceptions in which a person is still required to pay the salaries tax as the housing benefits may be given as a free or subsidized accommodation, not in the form of a cash allowance.
Generally, employers or their relevant companies acquire a property either by purchase or lease of it for use by the directors or employees as their accommodation. Rather, the rent-subsidized arrangement is almost always contracted by the employers or the affiliated companies, who then reimburse the individual’s rent expenses either partially or in full.
Content Outline
The Proper Tax Guidelines on Housing Allowance
According to Hong Kong Inland Revenue Ordinance, housing allowance is regarded as assessable income and the actual amount is computed together with salary in determining the salaries tax payable in Hong Kong. Nevertheless, if the directors/employees are offered a place of rent-free or rent-subsidised residence, it will be taxed based on the deemed rental value which is calculated as 4%/8%/10% of their assessable income (after deducting the outgoings and expenses) earned from their employer/the employer’s affiliated corporation, depending on the type of accommodation.
Here is the Tax-saving example
The monthly salary of person A is HK$40,000 and his monthly housing allowance in cash is HK$10,000.
As for person B, his monthly earnings are again HK$40,000, but he is being paid back by his employer every month with a reimbursement of HK$10,000 housing allowance for his accommodations.
If both of them are taxed at the highest progressive rate of 17%, the assessable income under the above two situations and the tax savings will be as follows:
Taxation Issues and Housing Allowance
The Hong Kong Inland Revenue Department (‘HK-IRD’) has been exceptionally strict in verifying the taxable housing benefits to prevent the abuse of the potential tax-saving arrangement. In case the directors/employees are claiming rent-free or rent-subsidized accommodation, the HK-IRD may check the authenticity of the claim and usually look into the following facts:
- Whether or not, the employers intend to accommodate the directors/employees.
- Whether or not, the employers have set specific arrangements/policies for offering an accommodation to the directors/employees.
- Whether or not, the employers have good control over the spending of directors/employees who are being paid by the employers using the rental.
To be qualified for business tax benefits, it is imperative to have the written contracts between the employer and the company policy on granting the accommodation subsidies well prepared, and also have the rental reimbursement cost form and rental receipts properly stored.
The full tax consultancy on the housing allowance and other tax-related issues can be taken care of by Fastlane Group which is an established corporate services, accounting, audit, and tax advisory services provider in Hong Kong. If you need help with filing your tax return or professional accounting services, feel free to contact FastLane Group. Our team of experts is ready to help you!