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Fringe Benefits – Accommodation 2016-11-16

Fringe benefits will not be subject to Hong Kong salaries tax if they are:

(i) Not convertible into cash;

(ii) Provided by the employer in such a way that the employer has a sole and primary liability to pay for that benefit (with the exception of education benefits for children of employees);

(iii) A settlement of the employer's liability not guaranteed by any other person (not discharging the employee’s personal liability); or

(iv) Not benefits specifically chargeable to salaries tax.

Common tax-efficient accommodation arrangements

A. Accommodation benefits for a place of residence provided rent-free by the employer or anassociated corporation of the employer

A place of residence, for which an employer or its associated corporation has paidor refunded all the rent, is deemed to be provided rent-free by the employer or associatedcorporation of the employer. The rental value of such accommodation is chargeable to tax.

The rental value shall be deemed to be 10% of the incomederived from the employer for the period during which a place of residence is providedafter deducting the outgoings, expenses and depreciation allowances.

Taxable stock option gains and lump sum gratuity are not included as income for the purposes ofcalculating the rental value. On the other hand, share award is included as income in calculatingthe rental value. Self-education expenses cannot be deducted from the income in calculating therental value.

Alternatively, the rateable value of the accommodation may be elected as the rental value.

Rateable value is the estimated annual rental value of a property at a particular date which is used to calculate the amount of rates payable by the Rating and Valuation Department in Hong Kong.

If the place of residence is a hotel, hostel or boarding house, the rental value will be charged at 4%or 8% instead of 10% as follows:

  • Not more than one room 4%

  • Not more than two rooms 8%

    Accommodation benefits for a place of residence provided by the employer or anassociated corporation of the employer at a rent less than the rental value

    If the employer or its associated corporation has only paid or refunded part of the rent for a place ofresidence provided by the employer or its associated corporation, the amount of rent paid whichwas not refunded ('rent suffered') can be deducted from the rental value.If the amount of rentsuffered is greater than the rental value, the resulting amount will be zero (i.e. cannot have anegative amount).

    C. Payment (or refund) of rent

    Payment (or refund) of rent by an employer or its associated company is specifically excluded from Hong Kong salaries tax under certain conditions.

    In order to benefit from the exemption, taxpayer should be cautious of the following:

    - T
    he intention of the employer and the employee on the nature and use of the paymentwould have to be clear; and

    - S
    ufficient control would have to be exercised by the employerover the payment so that the payment is effectively a refund of rent and not just an additionalemolument to be spent in any way that an employee may desire.

    Please be advised that if no system of employer control exists to verify that a payment made to an employee was a refund of rent, the payment from the employer is likely to be in cash allowances, which is fully chargeable to Hong Kong salaries tax. Also, a cash allowance (though labelled as 'a housing allowance') provided to an employee (with no control over its actual use) would likely be regarded as additional emolument of the employee, which is fully taxable, notwithstanding that the employee did spend the allowance on rental payment.

    On the other hand, the payment (or refund) of rent by the employer or an associated company ofthe employer to the employee is not chargeable to salaries tax, as the accommodation benefit provided to the employee is taxed on the notional rental value (or the rateable value) of thataccommodation as discussed above.