Are director's fees taxable in Hong Kong

Are Director's Fees Taxable in Hong Kong

Director's fees are taxable in Hong Kong. The Inland Revenue Department treats them as income from an office, subject to salaries tax, not profits tax. A director holds an "office" within the company. Fees paid for that office are assessable income under the salaries tax provisions of the Inland Revenue Ordinance. The director, not the company, bears the tax liability.

Hong Kong Director's Fees Tax Treatment

Hong Kong's tax treatment of director's fees follows the territorial source principle. Fees are assessable if the directorship relates to a Hong Kong company, regardless of where the director works or is paid. The IRD deems the income source to be Hong Kong because the office is located there. A non-resident director who performs all duties outside Hong Kong may still be liable for salaries tax on fees from a Hong Kong company, though the 60-day rule may provide an exemption for short visits.

Salaries Tax Director's Fees Hong Kong

Directors must report their fees on their individual tax return, Form BIR60, under salaries tax. These fees are added to any other employment income from the company, such as a salary or bonus. The total is then subject to salaries tax at progressive rates up to 17% or at the standard rate of 15% on net chargeable income, whichever is lower. The director can claim deductions and allowances available under the salaries tax regime, including the basic allowance, dependent parent allowance, and charitable donations.

Tax on Director's Remuneration Hong Kong

Director's remuneration includes fees, salaries, bonuses, commissions, and any other consideration for their services. All such payments are treated as income from the office of director and are chargeable to salaries tax. The company does not deduct tax at source from director's fees unless the director is also an employee and the company operates a payroll system. Instead, the director receives the gross amount and settles the tax through the annual assessment process or provisional salaries tax payments.

IRD Director's Fees

The company must report director's fees to the Inland Revenue Department on its employer's return. It must file Form BIR56A, the annual employer's return, together with Form IR56B for each director who receives fees. Form IR56B must show the gross amount of director's fees paid during the year of assessment. The company must also notify the IRD when a director is appointed using Form IR56E, and when a director ceases to hold office using Form IR56F. Failure to file these returns can result in penalties.

Filing Obligations for the Director

The director must file an individual tax return, Form BIR60, each year of assessment to declare the fees received. The IRD will issue a tax assessment based on the return, and the director must pay any salaries tax due. Even with no other income, a director may still need to file a return if the IRD issues one. The director may also be subject to provisional salaries tax, an advance payment on the estimated tax for the following year.

Filing Obligations for the Company

The company must maintain accurate records of all director's fees paid and report them to the IRD annually. It files Form BIR56A and Form IR56B by the statutory deadline, typically within one month of the issue of the return. The company does not deduct salaries tax from director's fees, but it must provide the IRD with the information needed to assess the director. Keep records of the fees for at least seven years.

Director's Fees and Profits Tax

Director's fees are not a deductible expense for the company's profits tax computation. The company cannot claim a deduction for these fees because they are considered a distribution of profits, not an expense incurred in producing assessable profits. This differs from an employee's salary, which is generally deductible. The company pays profits tax on its assessable profits without reducing them by the director's fees. The director pays salaries tax on the fees received, and the company pays profits tax on the same amount, resulting in a double layer of tax on the same economic value.