Hong Kong's vibrant job market often attracts talent from around the world. For many expatriate employees, the question of housing allowance and its tax implications can be quite complex. To ensure clarity, let's delve into the details of house allowances and the related tax considerations in Hong Kong.
House Allowance and Taxation
If an employee is provided with accommodation by their employer or an associated corporation, the rental value (RV) of that residence is considered part of their Assessable Income. The RV is calculated as a percentage of the employee's total net income from the employer and associated corporation, after deducting outgoings and expenses (excluding self-education expenses). The exact percentage depends on the type of accommodation provided: 4%, 8%, or 10%.
|
Type of Accommodation |
Percentage |
|
A residential unit / serviced apartment 1 room in a hotel, hostel or boarding house 4% |
10% |
|
2 rooms in a hotel, hostel or boarding house |
8% |
|
1 room in a hotel, hostel or boarding house |
4% |
Eligibility and Documentation
To qualify for the housing allowance approved by the Inland Revenue, certain criteria must be met:
- Valid Lease Agreement: There should be a legally valid lease agreement for the apartment where the employee, their family, and any domestic helper(s) reside.
- Documented Rental Payments: It's preferable to have documentation that demonstrates rental payments, typically in the form of rental receipts. In some cases, other forms of evidence, like bank statements showing automatic debit payments, may be accepted, although this is less preferred.
- Relevant Supporting Documents: Any additional documents related to the lease and the use of the apartment should be kept for future reference and as evidence of rent payment.
Tax Return Process
During the process of filing a tax return, it's not necessary to submit the above-mentioned documents to the Inland Revenue. Instead, these documents should be retained for record-keeping purposes. They can be provided to the Assessor for review if requested.
Practical Examples
Let's consider a couple of practical examples:
- Full Rental Payment: If an employment package consists of HKD 40,000 per month (13 months) plus HKD 20,000 per month for housing (in a residential unit or serviced apartment), the employee's taxable income would be calculated as follows: [(HKD 40,000 x 13 months) + 10% of (HKD 40,000 x 13 months)]. This assumes that the employment contract specifies HKD 20,000 per month for housing, and the employee has a rental contract endorsed by the Inland Revenue Department.
- Shared Rental Payment: In the case of shared rent with a spouse, if the employment package remains HKD 40,000 per month (13 months) plus HKD 20,000 per month for housing (in a residential unit or serviced apartment), but the actual rental cost is HKD 10,000 per month (due to sharing), the taxable income would be calculated as follows: [(HKD 40,000 x 13 months) + (HKD 10,000 x 12 months)] + 10% of [(HKD 40,000 x 13 months) + (HKD 10,000 x 12 months)]. Again, the assumption is that the employment contract specifies HKD 20,000 per month for housing, and there's a rental contract endorsed with the actual cost of HKD 10,000 per month (due to sharing). In this scenario, the difference of HKD 10,000 would be considered a cash allowance and fully taxable, not subject to the 10% rate.
Conclusion
Understanding the intricacies of housing allowances and taxation is essential for expatriate employees in Hong Kong, ensuring compliance with tax regulations while making the most of available allowances.
Contact us today, for a free calculation of your allowance.