In this blog, we would start detail discussion on the salaries tax on income of an employer in Hong Kong. But before going into deep first we will have short discussion on key concepts like which income can be subjected under assessment, the definition of basis period, relation of basis period with assessment year and the impact of basis period on assessment of income tax on a taxpayer. Then we will explain what is meant by accrual and how it is related to the assessment procedure of income tax, what benefits come under category of lump sums on cessation and deferred pay and what income of employee from employment or office is exempted from income tax under Section 9 of Hong Kong constitution.        

Gained Income

During an assessment year, the assessable income under salaries tax of a person is regarded as collective income that is occurring to a person from all sources during assessment year, in Section 11B.

Basis Period

In order to calculate the tax on salaries of person basis period is considered as same as year assessment. Like assessment year it also starts from 1 April of that year following up to 31 March of next year.

In order to explain the duration of basis period lets’ see an example. For year 2018 to 19 the basis period will start from 1 April 2018 and continue up to 31 March 2019 respectively.

There can be scenarios that a person may have more than one employments or you can say more than one offices. So by tax department for one assessment year only one assessment would be issued on him/her. And this assessment would be charging tax on collective assessable income from all of his offices or employments.

Lets’ discuss another example. During the basis period that ended on 31 March 2016 Mr. Chan had one full time and other half time employment. The income from both employments of Mr. Chan from 1 April 2015 to 31 March 2016 as a whole was subjected to salary tax during that assessment year or basis period.

Defining the term ‘Accrual’

According to tax rules defined under Section 11 D (b), income is to be received or accrued by a person if he is entitled to ask for payment thereof. In economics term this is the time when income is required to be paid to the taxpayer under the contract of employment between him/her and employer. As discussed in case BR 13/74 that, a government employee after completion of contract with government was entitled to payment of gratuity. It was not allowed to him to attain the gratuity benefits before the completion of his contract.  His contract was completed on 3 April 1973. Three days before the completion of his contract, on 30 March 1973 payment for gratuity was cleared by government and was deposited in his account on 2 April 2017 one day before completion of his contract. So his income was assessed for assessment year 1972/73 and reason for this was that he was not legally allowed to take this income before the end of his contract. In case if bonus is to be paid by company based on its profit during an assessment year then bonus would only be accrued if profit is able to be ascertained not before this.

In D 35/85, bonus was paid by a set up Hong Kong limited company and assessed by taxation department. Bonus was paid by a company on 23 May 1981 to its employees based on the profit for the year ended on 31 March 1981.and this was due to the reason that profit for that year ended 31 March 1981 was ascertained after sometime. It was also considered that the bonus given to employees in year assessment 1981 to 82 and not before was due to this reason that before 1 April 1981 bonus was not ascertainable.

As given in D 28/95, it was seen that due to some unknown reasons an employee left the employment on 13 March 1991. Even after employee left the jobs employer paid him arrears of housing allowance in a number of installments. He received the full payment in the form of installments by July 1994. As for each assessment year the rules for assessing income may vary so income that he received was assessable according to rules of year assessment 1990 to 91. And this decision was taken by BoR.

In another D 75/04, a taxpayer left the employment with effect from 31 March 2003. That person received the special bonus by his previous company on 28 May 2003. By considering the rules defined in Section 11D (a) and (b) (ii) it was held by Board of Revenue that special bonus was computable in year assessment 2002 to 2003.

A person is considered to have received the income if:

  • Income received has been apportioned with on his behalf.
  • Income received has been made available to him.
  • Income received has been dealt by him or someone else according to his directions, provision to Section 11D (a).

A taxpayer was considered as eligible for the special bonus from company. It was requested by him that his employer apply sum in his payment for certain shares. As this was dealt on his behalf and on his directions that employer apply sum in his payment so sum was held to be taxable, given in D 22/94.

As seen in D 98/03 it was observed that, a taxpayer was given some shares in order to settle his advance payment of salary due to his demand. So it was held by board of revenue that this money that was paid earlier were assessable and it was also stated that values of shares that were given to him as payment was not relevant in computing his salary tax. As these shares was given to him as settlement of salary so provision of Inland Revenue ordinance was not applicable to this share option.

Seeing D 26/07, Bank A employed a taxpayer T, his employment contract was provided to him and according to that contract:

  • Two incentives would be given to the employee. One is settling-in allowance and other one is sign-on bonus.
  • It was also mentioned in employment contract that remuneration gained by these (SOB) and (SIA) benefits would be returned by him according to calculated shared, if he resigned from the employment within 12 months from beginning of employment.

And it was observed that after his resignation from bank A, before 12 months for commencement of his employment he paid a pro rata portion of these SIA and SOB. While he was getting the benefits in the form of SIA and SOB from bank all of his income under these funds was assessed without adjusting for refund. According to board of revenue the meaning of income is said to be ‘money received’. This money received is for work or through investments, on regular basis specifically. There are no reasons for a person to be assessed for money that has not received to him. As employee T was only allowed to receive full SIA and SOB after serving full 12 months from date of employment. So he left employment before 12 months hence, he was not assessed for full benefits of SIA and SOB as he had not received it.

If employment of person is ceased and after that employer paid him sum so it would be considered that the sum he paid to employee have to be paid by him on last day of employment as it was pending on him, as in Section 11D (b).

Now we will discuss an example. A guy named Mr. Cheung retired from a company LM Ltd that was doing business in Hong Kong. The date of his retirement was 31 March 2016. In respect of LM Ltd. Mr. Cheung received a bonus of $12,000 on 5 April 2016. The bonus was due to profit by company for year ending 31 December 2015. So the bonus was considered to be received by Mr. Cheung on last day of his employment i.e. 31 March 2016.

Lump Sums on Termination and Deferred Pay

According to Section 11D (b) the sums that are given below can be linked back.

  • A lump sum payment that is in the form of gratuity that is granted or paid to an employer as a result of termination of his services or retirement from employment or company.
  • A lump sum payment that may due on a person in the form of arrears of pay or pay that was postponed by company.

In order to claim the payment back, this claim must be made in writing by respective employer within 2 years of end of years’ assessment, proviso (i) to Section 11 D (b). The years’ assessment should be same in which payment is made. If in case lump sum is exempted than there would be no use of spreading back the provision. For example, lump sum that is to be received from mandatory provident fund would be exempted. For someone who want to set up sole proprietorship in Hong Kong should have information about rules defined by constitution in order to entertain the employee with payment back and to avoid any future inconvenience.

Described an example, Mr. Wong was employed by a company. This was a set up Hong Kong limited company named as X Ltd. four years ago. After completing his four-year contract with company on 31 December 2015 he was gratuity of $150,000. Among this payment 15 % was his total basic salary for the period of contract. This gratuity was given to him on 1 January 2016. Mr. Wong had right to claim spreading back the gratuity on or before 31 March 2018 i.e. (two years after the payment of gratuity which was the assessment year 2015 to 16) as lump sum.

If claim by employer is valid then lump sum is considered to be received by employee during the periods in which services were performed by him. The duration for payment of lump sum is limited to a maximum period of three years ending on the last day of employment or entitlement but it depends that which date is earlier among date of entitlement or last day of employment, as in proviso (i) to Section 11D (b).

In this example we will have an illustration of year of assessment, period of service, number of months and amount of gratuity in the form of table. It can be observed from illustration that gratuity for services provided for four years can be spread back for a maximum period of 36 months or 3 years. In the given table gratuity amount related back to years of assessment concerned are calculated as follow.

Sr. number

Assessment year

Service period

Number of months

Gratuity amount


2012 to 13

01/01/13 - 31/03/13





2013 to 14

01/04/13 - 31/03/14





2014 to 15

01/04/14 - 31/03/15





2015 to 16

01/04/15 - 31/12/15








In D 46/05 it was observed that an employer presented the outstanding performance and achieved the bonus for the period from 16 December 2002 to 30 June 2003 as a result of recognition of his services. He desired to relate back the 50% to the assessment year 2002 to 03. But his claim of relating back 50% to assessment year 2002 to 03 was rejected by the board of revenue. Because employer took the decision to pay the bonus to employee on 18 August 2003 while assessment year 2002 to 03 ended on 1 April 2003 and till that time employee was not enabled to the bonus.

Office or Employment as a source of Income

If income is received from Hong Kong office of a company doing business in Hong Kong or employment it would be assessable to salary tax under Section 8 of constitution. It is to be ascertained under Section 9 and case law that which benefits are included in the form of income from office or employment. Section 9 defines the basic rules to evaluate that which specific items as income from office are included and which are exempted from assessment.  

The definition of income is defined by case law and according to this law:

  • Income from office or employment includes that income that is to be received by the services that are provided or to be provided by an employee as a part of Hong Kong company setup service. However, it was the stance of board of revenue that income from office or employment is not only restricted to income from services that are provided by employee, in D 90/96 and D 19/92.
  • Income from office or employment does not include the receipts that are received by an employee for personal reasons like medical or entertainment reimbursement etc.
  • This income also does not include the compensation from some source for loss of personal rights.   
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