Salaries Tax - Share Option / Share Award Taxation
In Hong Kong, Salaries Tax is levied on income derived from any employment, office and pension. Chargeable income includes income derived from share options and share awards granted to employees under share option scheme. The taxation of these financial incentives is more complex compared to other typical income such as wages and rental allowance.
Taxation of Share Option gains
Share options granted to employees are generally taxed upon the exercise of options, i.e. share option gains are not taxable when employers grant the options. The taxable amount on share option gains is the excess of the market value of the shares at the time of exercise over the total consideration paid by the employee.
The residence of the company in which share options are granted is not a relevant taxability factor, i.e. there is no difference whether the company is a Hong Kong company or non-Hong Kong company, the gain on the exercise of share options is taxable in Hong Kong if it is derived from an employment chargeable to Salaries Tax.
Taxation of Share Awards
Different from share options, share awards under share award scheme are assessable when the shares are vested to the employees. There are two assessment approaches, Upfront Approach and Back End Approach.
Under the Upfront Approach, share awards are assessed to tax at the time of grant by the employer because little needs to be done to vest the shares in the employee at the end of the restriction period.
Under the Back End Approach, there are certain conditions which have to be satisfied before the shares are vested in the employee, for example, completing a specified period of employment and the company attaining certain level of financial or operational performance. The share awards will be chargeable to tax when the shares are actually vested in the employee.
How our services can help
As the timing and taxable amount of share options and share awards could be controversial, we provide professional advice and support on these issues as follows:
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