In our series of discussion on implementation of Hong Kong tax law on income of a taxpayer, we have already discussed some benefits that are to be exempted or not considered before application of income tax on the remunerations of an employee. In this blog we will further discuss, what are the impacts of house rent on assessable income of an employee if it is paid by employer or associated corporation.

An assessable income of an office holder or employee should also include rental value. If the employer or associated corporation of an employee has:

  • Refunded or paid all or part of rent for his profit or return as described in Section 9 (1A) (b) of Hong Kong tax law.
  • Provided the employee with a place for residence as described in Section 9 (1) (b) of Hong Kong tax law.
  • Given him with profit or loss at rent less than rental value as described in Section 9 (1) (c) of Hong Kong tax law.

So above described benefits for an employee from employer or associated corporation covers the situation where:

  • Associated corporation or employer refunds all or part of rent and employee contracts a PoR.
  • A PoR is owned by employer or associated corporation and these allows the employee to engage it at a rent below resident value or rent-free.
  • A PoR is leased by associated corporation and employer and these allows the employee to engage it for, rumination payable to associated company setup in Hong Kong or employer which is below rental value or rent-free.

If a profit or loss is provided to an employee by employer or associated company at a rent that is less than resident value, then excess of rent value over such rent shall be added to his taxable income.

Rental Value calculation under Section 9 (2) of Hong Kong tax law

On the net assessable income of an employee the resident value of a profit or loss is a fixed percentage. For example, gain on share option, reduction in the allowances, expenditures and less outgoing assessable income and gratuity or lump sums in the form of benefits paid upon termination of employment from local or offshore incorporations HK limited of an employee or retirement.

The fixed percentage if accommodations for residence include not more than a single room in boarding house, hostel or hotel would be 4 %.

The fixed percentage if accommodations for residence include not more than two rooms in boarding house, hostel or hotel would be 8 % as in Section 9 (2) of Hong Kong tax law.

The fixed percentage for all other cases would be 10 % as described in Section 9 (2).

Let’s discuss an example to further clarify such situation. A company named as A Ltd. hired a person in hong Kong, Mr. Chan.  The responsibilities of Mr. Chan were to manage accounts as an accountant. Mr. Chan was provided with a monthly salary of $30,000 and a place of resident in a hotel suit during the year ended 31 March 2016. This suit was consisted of 2 bedrooms. As these accommodations from company to Mr. Chan were not totally free so he had to pay the rent to A Ltd. The amount for this rent was $1,000. As Mr. Chan was member of Hong Kong institute of certified public accountants (HKICPA) so he had to pay annual membership fee of $2,450 to that institution.

So for the assessment year 2015 to 16 the net assessable income of Mr. Chan is as given below in the table.

Mr. Chan

Computation of salaries tax

Assessment year 2015 to 16

Basis period: year ended 31 March 2016

Salary (12 * $30,000) = $360,000

Adding: Rental value ($360,000 - $2,450) * 8% = $28,604

Less: Rent paid (12 * $1,000) = ($12,000)

Net rental value = $16,632

Total assessable income = $360,000 + $28,604 – $12,000 = $376,604

Less: acceptable outgoings = $2,450

Net assessable income = $376,604 - $ 2450 = $374,154


There can be the case where resident value is 10% of the net assessable income, in case such like that a taxpayer may select to use the rate able value instead of 10% RV.

Seeing another example, B Ltd. that was a company setup in Hong Kong, employed a person Mr. Wong. Mr. Wong worked as general manager for B Ltd. for many years. A monthly salary of $150,000 was paid to him along with a rent free flat for residence as from 1 April 2015. Under the Rating Ordinance for year ended 31 March 2016, the rate able value of flat was $144,000. Given below the taxable income of Mr. Wong.


Mr. Wong

Computation of salaries tax

Assessment year 2015 to 16

Basis period: 1 April 2015 - 31 March 2016

Salary (12 * $150,000) = $1,800,000

Adding: Rental value (equal to rate able value) = ($144,000)

Income to be assessed = $1,944,000

By this example the advantage of choosing rate able value of $144,000 by Mr. Wong to substitute the larger RV at 10 % of annual salary i.e. $180,000 can be can observed. 

According to the D 101/89 the gratuity received by the employee following to his old contract, when his/her contract is renewed by employer, the computation of new resident value must include that gratuity. As this gratuity is due to renewal of contract as followed by previous contract not due to termination of employment.

Income assessable under boarding house, hotel, hostel

By viewing D 91/04, it was observed that a serviced apartment was not allowed to be considered as hotel, hostel or boarding house. So 4 % and 8 % of total annual income to compute resident value does not apply. As in order for an apartment to be qualified as boarding house, meal must be provided to its residents. Also a hostel is not permanent but temporary accommodation for working personals either men or women. Including some other features hotel provide accommodations for short term and overnight. And it provides accommodations to one who is in fit state and able to pay his/her living accommodations. It can provide services without or with prior booking.     

In a D 23/84, it was held by board of revenue department that a room to determine the percentage for computation of resident value means a bedroom. Although the percentage that was computed by this was applicable to hotel suite that consist of a bathroom, bedroom or sitting room and applied should be 4 %.

It was the stance of an employee in D 38/05, the residence provided to him by employer that was providing Hong Kong company incorporation services, was a hotel room and consisted of a kitchenette, bedroom, a sitting room and many of facilities were not available. So there should be application of 4% resident value instead of 10% on such resident. But his argument was rejected by BoR and it was its stance that the resident fell within ‘any other case’ under Section 9 (2) of Hong Kong tax law and according to law the resident value should be 8%.

One more thing to note here that if profit or loss is provided by an associated person who is not a part of corporation then Section 9 (6) (i) and (ii) of Hong Kong tax law do not apply in such case.   

Employment outside Hong Kong

If the employment of a person is outside Hong Kong, for example on a time-in, time-out basis then the only amount of his income would be taxable that is due to services provided by him in Hong Kong. Then resident value instead of being his total income, is the relevant percentage of taxable income. According to BR 20/76, this is the reason that absence of an employee from Hong Kong the quarters are available to employee in Hong Kong.  In the proceeding of a case RP Williamson (1981) it was observed that, the rent paid by employee is not divided but allowed to full deduction in order to compute the net rental value.

According to Section 9 (1A) (a) of Hong Kong tax law, as given in D 92/95, rent reimbursed or paid by an employee is not subjected to tax.

Cash given for allowance or it’s for a rental refund

It is mandatory for a person to distinguish between a cash allowance that is paid to employee by his employer and a sum that is rental fund. In accordance with Section 9 (1A) (a) of the Hong Kong tax law a sum is exempted if the all part of rent of employee is paid by the employer.  And the sum that is a cash allowance but not a refund for rent is fully taxable according to Section 9 (1A) (a) as it is income from employment. Above defined criteria is implemented even if the sum is described as refund on housing by employer.

Seen in D 62/92 and D 16/83 that sum that was paid by the employer or associated corporation to employee was in excess of rent, and no possession of land agreement or rental receipt was available in support of this act. The sums as a result of this were not exempt from tax. While in a D 33/97 it was seen that, in order to take advantage of housing benefit scheme by his employer or associated corporation employee entered in social or non-binding contract with his parents. His parents were owner of property. It was held by board of revenue that, according to law the amount of dispute could not be referred as rent refund. No rental value would be added to the assessable income if sum is not a rental refund but a cash allowance.

In Page (2002), it was considered by court of first instance that, the sums are exempt if these are paid as amount to refund the rent by employer, having company that is either local or offshore incorporations HK limited. This is so even if the employer did not implement any arrangement or system to make sure that what payment he paid was not for any other purpose other than refund of rent specifically or employer had chosen to not query the employee for any proof of his payment for paying rent. And in opinion of board of revenue it is damn clear that employee must implement a sufficient control to ensure that for a payment to be refund of rent is effectively a refund of rent only, and not an additional fee spent in any way as per desire of employee. As it is wrong according to law.

So it should be clear that amount paid by employer for refund of rent of employment should be for similar purpose. If an employer pays the emolument to employee without knowing that whether employee have to made any payment for rent or not, then it would be difficult to judge by law enforcement agencies that payment by employer is a rent or refund. So a taxpayer that desire to open company in HK have to keep this knowing issue in mind.

In the case of Page defined earlier, it was viewed that the emoluments paid by employer were cash allowances not a refund of rent. And it was admitted by the employer that in case of allowance he would receive full amount even if the rent that he paid is less than amount of remuneration he got as allowance or he would have entitled to allowance even though he had not rented any premises.

By considering a further D 38/04 it was observed that a taxpayer let to his employer the property that he owned. This property was provided to employee as a housing benefit. There was an engraved termination of employment agreement between employer and taxpayer. The rental receipt for the refund of rent was provided by the employee to employer. So the investigations and observations of CIR were supported by the statement of board of revenue that as emoluments paid by employer to taxpayer were cash allowances not the refund of rent. And further it was stated that under Section 61 of law termination agreements are ‘not real’ or at least artificial. And as reaction the taxpayer relied on the ‘Assessment policy’ of inland revenue department. According to this taxation policy a taxpayer can wear both the hat of a landlord and employer. However, if arrangements are real, at arm’s length and equitable then only the policy will applicable.       

* The email will not be published on the website.