The official name in the tax return for housing allowance, also called rental reimbursement scheme, is housing benefits. The main advantage is that the taxable value of the housing allowance is taken as (normally) 10% of the employee's total income other than the housing allowance.
Let us take for example a total remuneration package is HK$80,000 per month, HK$25,000 of which will be reimbursement of actual rent paid by the employee and HK$55,000 will be paid as salary. The taxable income of the employee will be HK$60,500, comprising HK$55,000 salary plus HK$5,500 (10% of his other income of HK$55,000). Housing allowance is probably the last remaining tax advantaged benefits that are still permitted by the Inland Revenue. (All the other benefits commonly provided 20 or 30 years ago, such as school fees, holiday trip, maid allowances are now taxable on ground of the employer paying off the liabilities of the employee and thus constitute a form of remuneration.)
There is no strict limit as to how much of the remuneration can be paid as housing allowance. First, it needs to be genuine, that is, the employee actually lives in the apartment which should be leased from un-connected persons (not family members / relatives). The rent is reasonable, having considered the location and the station in life of the employee (including his grade / rank). Cases such as 20% to 30% of the remuneration package are quite common. The remaining part of the remuneration needs to be able to sustain a reasonable living for the employee.
In order to have the housing allowance allowed by the Inland Revenue, there needs to be:
A lease agreement on the apartment occupied / lived by the employee, his family and domestic helper(s) if any;
Rental receipts (preferably) or other evidence of payments (such as autopay debits on bank statements (not preferred));
Other documents concerning the lease and use of the apartments, if any, should be kept for future reference / proof of use of apartment / payment of rent.
When filing the Tax Return, there is no need to provide to the Inland Revenue the above documents which should be retained so that they can be produced to the Assessor for review upon request.
The employer can still offer the employee other benefits such as home leave, private medical insurance, but these will be taxable. Business trip will be treated as company expenses (not employee remuneration) but any private part may need to be deducted and added to the staff remuneration. Group medicine insurance, which typically require 3 employees or more, are normally not taxable benefit on the part of the employees. Unless it is an up-market plan, a typical group medicine insurance plan offered by high street service provider are reasonably priced but for medical benefits at Hong Kong price level only.
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