Share Option Gains – Non-Hong Kong Employment Situation and Employer’s Liability

The Inland Revenue Ordinance stipulates that all income derived from employment positions in Hong Kong must be subject to salaries tax. However, if the employee is employed outside Hong Kong and works part-time in Hong Kong, only the part of the income earned from the service in Hong Kong will be taxed. Calculate the income from services in Hong Kong, and this income will also include relative holiday wages.

If such non-Hong Kong employed employees are granted share subscription rights, the vesting period includes his working hours in Hong Kong and non-Hong Kong. Therefore, his gains from the exercise, transfer or waiver of share subscription rights will not be fully charged to salaries tax, The income arising from work in Hong Kong is also calculated in proportion to the number of days spent in Hong Kong.

The method of calculating the income is to calculate the number of days the employee worked in Hong Kong, together with the number of vacation days arising from the work in Hong Kong, during the period from the date of the grant of the share subscription right to the date when the share subscription right can be exercised, accounting for the exercise period. percentage of the total number of days.

As the share option income granted to employees as a result of their employment or employment is an additional reward, employers are required to declare details of the income in the relevant section of a series of forms. These IR series forms include 56E, 56 A+56B, 56F and 56G. Employers should pay attention to the following points when reporting:

• The name, identity card number or passport number, name of the joint stock company, number of shares and the year of assessment granted to the director or employee who has acquired the share subscription rights must be provided in a schedule and submitted to the Inland Revenue Department together with Form IR56A.

• Employers are required to provide details of each director or employee benefiting from the exercise, transfer or waiver of share options in the relevant year

• If a director or employee was granted a conditional share option prior to taking office, the employer must report this information on Form IR56E together with the following:

• Number and class of shares

• Costs to be paid by directors or employees

• The price at which the share option is exercised

• Specified date and time limit for exercising share subscription rights

The above information is for reference only. If in doubt, we welcome your tax enquiry

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