Hong Kong Salaries Tax 2026: Source of Income, the 60-Day Rule, Directors’ Fees and Leaving Hong Kong

Salaries tax in Hong Kong is charged not on residents but on income “arising in or derived from Hong Kong” from an office, an employment of profit or a pension — residence and nationality are irrelevant. The controlling question is always where the source of employment is located, not where the services were physically performed. The answer determines whether the whole income, part of it, or none of it is taxable, and whether the 60-day rule is available at all.

Alert. The costliest misconception in this area is that “fewer than 60 days in Hong Kong means no tax”. Paragraph 33 of Departmental Interpretation and Practice Notes No. 10 states plainly that the exclusion under section 8(1A)(b) refers only to visits, and that a person may still be chargeable even after spending 60 days or fewer in Hong Kong if that period is the start or the finish of a long period of residence, or if the presence is not a “visit” at all. The 60-day rule is a test of the character of presence, not a day-count safe harbour.

The second most expensive risk is directors’ remuneration. A director’s fee is charged under the basic charging provision, section 8(1), and is sourced where the company’s central management and control is exercised. Neither the 60-day rule nor time apportionment applies to it.

The legal framework governing salaries tax in 2026

The governing statute is the Inland Revenue Ordinance (Cap. 112), with salaries tax dealt with in Part 3 (sections 8 to 13). Administrative practice is set out in Departmental Interpretation and Practice Notes (DIPN) issued by the Inland Revenue Department (IRD).

Statutory layer (Cap. 112, in force):

•          s.8(1) — the basic charge: tax on income arising in or derived from Hong Kong from (a) any office or employment of profit, and (b) any pension.

•          s.8(1A)(a) — extension: employment income includes all income derived from services rendered in Hong Kong.

•          s.8(1A)(b) — exclusion for a person who (i) is not employed by the Government or as master or member of the crew of a ship or as commander or member of the crew of an aircraft, and (ii) renders outside Hong Kong all the services in connection with the employment.

•          s.8(1A)(c) — exclusion for income from services rendered in a territory outside Hong Kong where tax of substantially the same nature as salaries tax has been charged and paid.

•          s.8(1B) — the 60-day rule: in determining whether all services are rendered outside Hong Kong, no account is taken of services rendered in Hong Kong during visits not exceeding a total of 60 days in the basis period for the year of assessment.

•          s.8(1C) — added in 2018: the section 8(1A)(c) exclusion does not apply to a DTA territory as defined in section 48A.

•          s.8(2)(j) — separate regime for ship and aircraft crew.

•          s.9 — what constitutes income from employment: cash, perquisites, the rental value of employer-provided accommodation, share option gains.

•          s.9A — service company “Type I” arrangements.

•          ss. 11B, 11C, 11D — accrual and receipt of income, and relating lump sums back.

•          ss. 51(2), 51(7), 51(8) — the taxpayer’s notification duties.

•          ss. 52(2), 52(4)–(7) — the employer’s IR56 reporting duties.

•          ss. 50, 50AA — foreign tax credit and the general limitation on double taxation relief.

•          ss. 63C, 63E — provisional salaries tax and holding over.

•          ss. 80, 82, 82A — penalties.

Departmental practice layer:

•          DIPN No. 10 (Revised), June 2007 — “The Charge to Salaries Tax”, the central document on source. As at August 2026 it remains in its June 2007 edition and has not been revised.

•          DIPN No. 25 (Revised), November 2011 — “Service company ‘Type I’ arrangements” (section 9A).

•          DIPN No. 38 (March 2008) — “Salaries Tax: Employee Share-Based Benefits”.

•          DIPN No. 44 — the Mainland China–Hong Kong double taxation arrangement.

Case law layer: judgments of the Court of First Instance and the Court of Appeal, and decisions of the Board of Review, the first-instance tribunal for tax appeals, published on the Hong Kong government portal.

Two similar-sounding concepts must be kept apart. Tax residence for the purposes of a Certificate of Resident Statusunder a comprehensive double taxation agreement (CDTA) and the source of employment under section 8 are different constructs. Holding a Hong Kong certificate of resident status does not make an employment a Hong Kong employment, and a Hong Kong employment does not make the individual a Hong Kong resident for CDTA purposes. The IRD’s criteria for the certificate are covered separately in Hong Kong Certificate of Resident Status 2026.

The last substantive amendment to section 8 was made by the Inland Revenue (Amendment) (No. 6) Ordinance 2018 — Ord. No. 27 of 2018, gazetted on 13 July 2018. According to the IRD’s own schedule of amendments to Cap. 112, none of the ordinances enacted between 2019 and August 2026 touched sections 8, 9, 9A, 11B to 11D, 51 or 52. The 2024 to 2026 changes went to rates, allowances and concessions:

•          Ord. No. 10 of 2024 — Inland Revenue (Amendment) (Tax Concessions and Two-tiered Standard Rates) Ordinance 2024, gazetted 31 May 2024: introduced the two-tiered standard rate.

•          Ord. No. 10 of 2025 — Inland Revenue (Amendment) (Tax Concessions) Ordinance 2025, gazetted 9 May 2025: the one-off reduction for 2024/25.

•          Ord. No. 2 of 2026 — Inland Revenue (Amendment) (Tax Concessions, Concessionary Deductions and Allowances) Ordinance 2026, gazetted 22 May 2026: the one-off reduction for 2025/26 and the increased allowances from 2026/27.

Author’s assessment: DIPN 10 has not been revised since June 2007 and therefore reflects neither the Court of Appeal’s decision in Lo Wa Ming Patrick (2022), which reshaped apportionment under section 8(1A)(c), nor the outcome in Grewal (2023 to 2025). On contested apportionment questions the IRD’s current position has to be reconstructed from the minutes of its annual meeting with the Hong Kong Institute of Certified Public Accountants rather than from the Note itself.

Who pays Hong Kong salaries tax, and why residence does not decide it

Hong Kong salaries tax applies to any individual with Hong Kong-source income from an office, employment or pension, irrespective of nationality, immigration status or tax residence. The Hong Kong government states it directly: “Residents and non-residents may also be liable to salaries tax in Hong Kong and are taxed in the same way.”

This is a genuine structural difference from most jurisdictions. In a residence-based system the first question is where the person is resident. In Hong Kong the first question is where the employment is located.

The year of assessment runs from 1 April to 31 March, and the basis period for salaries tax is the same period.Every test — the 60-day count, apportionment, exemption — is applied inside that period and afresh each year.

The practical consequence is that the same person under the same contract can be wholly exempt in 2025/26 and wholly chargeable in 2026/27 if the geography of the work changes. An exemption is not granted for the life of a contract; it is proved year by year.

Hong Kong applies no withholding at source to wages or to directors’ fees, whether the recipient is resident or not.The employer files the IR56 series of returns and the employee pays on receipt of a notice of assessment. The single exception is the temporary retention of all payments when an employee leaves Hong Kong under section 52(7) — a tax-clearance hold that applies to any departing employee, not a withholding tax on non-residents.

Do not carry that conclusion across to other taxes. Hong Kong does operate withholding-type mechanisms, but they sit in profits tax: retention on royalties and on payments to non-resident entertainers and sportspersons under section 20B, explained in DIPN 17. Neither reaches employment income or directors’ fees. The full set of employer duties, including forms BIR56A and IR56B, is covered in Payroll and Employer Obligations in Hong Kong 2026.

What “source of income” means, and why the place of work is irrelevant

The source of employment income in Hong Kong is the place where the employment itself is located, not the place where the employee performs the work. That principle comes from the High Court judgment in CIR v George Andrew Goepfert (1987, 2 HKTC 210) and has governed practice for almost forty years.

The IRD reproduces MacDougall J’s words verbatim in paragraph 5 of DIPN 10:

“It follows that the place where the services are rendered is not relevant to the enquiry under section 8(1) as to whether income arises in or is derived from Hong Kong from any employment. It should therefore be completely ignored.”

And further:

“Specifically, it is necessary to look for the place where the income really comes to the employee, that is to say, where the source of income, the employment, is located. As Sir Wilfred Greene said, regard must first be had to the contract of employment. This does not mean that the Commissioner may not look behind the appearances to discover the reality.”

From this follows the counter-intuitive but decisive proposition, also quoted by the IRD from the judgment itself:

“If during a year of assessment, a person’s income falls within the basic charge to salaries tax under section 8(1), his entire salary is subject to salaries tax wherever his services may have been rendered, subject only to the so called ‘60 days rule’… Thus, once income is caught by section 8(1) there is no provision for apportionment.”

Where the employment is located in Hong Kong, the entire remuneration is chargeable regardless of where the work was done, and partial time apportionment is not available. An employee on a Hong Kong contract who spends 200 of 365 days travelling still pays tax on the whole salary. The only escape is not partial relief but total exemption under section 8(1A)(b)(ii) read with section 8(1B).

The mirror proposition is equally important:

“On the other hand, if a person, whose income does not fall within the basic charge to salaries tax under section 8(1), derives income from employment in respect of which he rendered services in Hong Kong, only that income derived from the services he actually rendered in Hong Kong is chargeable to salaries tax. Again, this is subject to the ‘60 days rule’.”

Under a non-Hong Kong employment, only income for services actually rendered in Hong Kong is chargeable, and that amount is arrived at by apportionment. The Hong Kong / non-Hong Kong employment question is therefore not a formality but the fork that sets the tax base.

A detail almost always lost when Goepfert is cited: the taxpayer won the case. Board of Review decision D87/00records the outcome plainly — the High Court agreed with the Board and held that “the source of the taxpayer’s income was offshore”; the Commissioner’s appeal was dismissed. The employment was located outside Hong Kong: the contract was with a foreign company, the remuneration was paid in US dollars in the United States, and the Hong Kong subsidiary did not ultimately bear its cost. The result was that only the part of the income attributable to services rendered in Hong Kong was charged, under section 8(1A)(a).

The practical significance is that Goepfert is not “the Commissioner’s case”. It establishes the test for locating an employment; applying that test to the facts can favour the taxpayer. What loses cases is trying to substitute a day count for the analysis of where the employment is located.

The wider territorial architecture is set out in Territorial Taxation and Offshore Status in Hong Kong 2026. The two territorial tests must not be conflated: the source of profits for profits tax and the source of employment for salaries taxare decided on different criteria, and an offshore profits claim by a company says nothing about the source of its employees’ income.

Hong Kong versus non-Hong Kong employment: the IRD’s criteria and their limits

The IRD will generally accept a non-Hong Kong employment where the contract was negotiated, entered into and is enforceable outside Hong Kong, with an employer resident outside Hong Kong, and the remuneration is paid to the employee outside Hong Kong. This is paragraph 26 of DIPN 10:

“In general, the Department would accept that a non-Hong Kong employment exists if the contract of employment was negotiated, entered into and enforceable outside Hong Kong with an employer who is resident outside Hong Kong and the employee’s remuneration is paid to him outside Hong Kong.”

The same three matters are the factors on which the Department places particular emphasis (paragraph 6 of DIPN 10):

“In determining where the source of income, the employment, is located, the Department will take into account all of the relevant facts, with particular emphasis on: (a) where the contract of employment was negotiated and entered into, and is enforceable…; (b) where the employer is resident…; and (c) where the employee’s remuneration is paid to him… Source is a practical hard matter of fact.”

The three factors are the Department’s administrative practice, not a judicially established test. DIPN 10 itself acknowledges the criticism in paragraphs 3 and 4: several Boards of Review described the three-factor test in the 1987 edition of the Notes as “inaccurate and misleading” and contrary to the “totality of facts” test (cases D40/90, D87/00 and D125/02). In D40/90 the Board put it bluntly: “By saying that if a taxpayer complies with three tests, he is not taxable in Hong Kong it would seem to us to be contrary to ‘the totality of facts test’… Surely must be wrong to look at three facts only.”

The practical consequence is that satisfying the three factors does not guarantee a non-Hong Kong employment, and failing one does not always destroy it. The IRD and the Board examine the totality: who the real employer is, who bears the cost of the remuneration, to whom the employee reports, where the decisions on appointment and dismissal are taken, and where the employer’s central management and control is located.

DIPN 10 warns separately, in paragraph 27, that assertions are not taken at face value: “General statements made by taxpayers or their representatives that they hold overseas employments with an overseas entity will not normally be accepted at their face value.”

A recent illustration of how far the enquiry goes is Randeep S Grewal v Commissioner of Inland Revenue (HCIA 3/2022, then CACV 3/2024). The taxpayer was chairman and chief executive of a Cayman-incorporated company listed on AIM in London and sought assessment on a time-apportionment basis. The Board of Review and the Court of First Instance found the company’s central management and control to be in Hong Kong. The Court of Appeal dismissed the taxpayer’s appeal by judgment dated 9 May 2025 (CACV 3/2024; professional sources report the neutral citation as [2025] HKCA 398). The IRD’s “Status of Tax Cases” register, in its edition of 31 July 2026, records no further appeal to the Court of Final Appeal.

Dual employment: workable, but only if it is real

Splitting a single employment into a Hong Kong contract and a foreign contract is permissible where the arrangement has independent commercial substance. In Board of Review decision D18/22 ((2021-22) Volume 36 IRBRD) the restructuring of one Hong Kong employment into two — with a Hong Kong company and with a foreign subsidiary — was held to be genuine, being “commercial and… motivated by realistic business considerations”. The appeal was allowed in part: the employment with the foreign entity was held not to be a Hong Kong employment, and the income for services actually rendered in Hong Kong was charged under section 8(1A)(a) on an apportioned basis.

The apportionment itself, however, was carried out on the conventional days-in-days-out calendar-day basis, not on working days. The Board described the days-in-days-out formula as offering “the advantage of practicality, objectivity and certainty” and expressly rejected the taxpayer’s argument for excluding transit days: “any part of a day spent in Hong Kong should be counted as a day and the Appellant’s submission that any transit day should not be counted is not preferred”.

Author’s assessment: some Big Four commentary on this decision states that the Board applied a working-days basis. The text of the decision does not support that — the Board applied days-in-days-out with an adjustment for the overlap between the two roles. Planning should follow the decision, not the summary of it.

The counter-example is D54/09, where a claim that all services were rendered outside Hong Kong was defeated by Immigration Department records showing 203 days of presence; the Board found the employment located in Hong Kong and dismissed the appeal.

Immigration records are a standard IRD tool. Nothing destroys a taxpayer’s position faster than a discrepancy between the claimed itinerary and the border data.

The 60-day rule: what it is and who can rely on it

The 60-day rule is section 8(1B) of the Inland Revenue Ordinance: in deciding whether all services were rendered outside Hong Kong, no account is taken of services rendered in Hong Kong during visits not exceeding a total of 60 days in the basis period for the year of assessment. The provision, as reproduced in Board of Review decision D27/03, reads:

“In determining whether or not all services are rendered outside Hong Kong for the purposes of subsection (1A) no account shall be taken of services rendered in Hong Kong during visits not exceeding a total of 60 days in the basis period for the year of assessment.”

Section 8(1B) grants no relief on its own. It operates only with section 8(1A)(b)(ii), the exclusion for a person who renders all services outside Hong Kong. The mechanics differ between the two employment types.

Under a Hong Kong employment the rule is all-or-nothing. If in the year of assessment all services were rendered outside Hong Kong and visits to Hong Kong did not exceed 60 days, the income is wholly exempt. If the visits exceed 60 days, the whole income is chargeable, with no apportionment. Paragraph 32 of DIPN 10 gives the example directly:

“Thus, an employee deriving income from a Hong Kong employment, who is posted to, say, Singapore or Tokyo to represent his firm and in the basis period of a year of assessment renders all his services there, will be wholly exempt from Salaries Tax.”

Under a non-Hong Kong employment the rule converts partial chargeability into complete exemption. Without it, the days worked in Hong Kong would be taxed; with it, visits of 60 days or fewer produce no charge at all. Once the threshold is exceeded the exemption disappears entirely and the apportioned share for all days of presence becomes chargeable — not merely the days beyond sixty.

Three categories of person are excluded from the rule by section 8(1A)(b)(i): Hong Kong Government employees, masters and crew of ships, and commanders and crew of aircraft. Crew members have their own regime under section 8(2)(j): exemption where presence in Hong Kong does not exceed 60 days in the basis period for the year of assessment and 120 days in total in the basis periods for two consecutive years of assessment, one of which is the year in question. Both thresholds must be satisfied.

A “visit” is not the same as “presence”

The exclusion applies only to visits; presence that is not a visit gives no relief however few the days. Paragraph 33 of DIPN 10:

“The exclusion under section 8(1A)(b) only refers to visits, e.g. a person may be chargeable even though he spent 60 days or less in the basis period of a year of assessment in Hong Kong if this is the start or finish of a long period of residence in Hong Kong or his presence does not constitute a ‘visit’.”

This is the most underestimated element of the rule. Someone who relocates to Hong Kong in February and spends 45 days there before the year of assessment ends has not “visited” Hong Kong — they have moved there. The same applies in reverse to a person leaving Hong Kong in March after several years of residence.

In D27/03 the Board addressed the other side of the question and accepted that having accommodation in Hong Kong does not by itself prevent a person from visiting Hong Kong. The point is decided on the totality of circumstances: the centre of life, the family, the principal place of work and the nature of the trips.

D40/07 adds a further warning: a claim under section 8(1B) is by its nature an admission that services were rendered in Hong Kong. The Board put it this way: “A claim under section 8(1B) must therefore constitute an admission that services were rendered in Hong Kong, though not all services.” If the 60-day claim fails, retreating to “I did nothing in Hong Kong at all” is no longer open.

Counting the days: two days for the 60-day test, one day for apportionment

For the 60-day rule any part of a day of presence counts as a whole day, and the day of arrival and the day of departure count as two separate days. The Hong Kong government states it explicitly: “A day is counted even though you may be present in Hong Kong for only part of that day”, and “the day of departure from Hong Kong and the day of arrival in Hong Kong are counted as two days”.

The Board of Review confirmed the same in D40/07:

“For the purpose of calculating the number of ‘days of visits’ for the purpose of section 8(1B), fractions of a day should be counted as whole days.” “Any day when a person is present in Hong Kong and it does not matter at which hour he arrives or at which hour he departs.”

In that case the taxpayer, an Asia-Pacific regional manager, was recorded by immigration as present in Hong Kong for 77 days in the year of assessment 2002/03. All three of his grounds — all services rendered outside Hong Kong, visits of 60 days or fewer, and time apportionment — failed. The 2002/03 assessment was confirmed: net chargeable income of HKD 21,995,003 and tax payable of HKD 3,299,250.

For apportionment purposes the count is different: the day of leaving Hong Kong and the day of returning together count as one day. This appears in IRD pamphlet PAM 42(e) in its April 2026 edition and on the GovHK portal: “in apportioning the employee’s annual income on a days-in-days-out basis, the day of arrival and the day of departure will be counted as 1 day instead of 2 days”. In the IRD’s worked example the period from 1 May to 1 September 2025 counts as 123 days, not 124.

Transit through Hong Kong airport also counts as presence. In Board of Review decision D45/09 an aircraft crew member argued that days spent at Hong Kong airport without passing through passport control should not be counted. The Board held otherwise: the person is present in Hong Kong from the moment the aircraft lands, and such days count towards the 60-day and 120-day thresholds in section 8(2)(j).

Author’s assessment: the apportionment concession set out above does not displace the general rule that a part day of presence is a day. In D18/22 (2022) the Board of Review refused to strip transit days out of an apportionment, holding that any part of a day spent in Hong Kong counts as a day. The practical conclusion is that transit stops in Hong Kong should not be assumed to count for nothing under either test.

The asymmetry is deliberate and cuts against the taxpayer in both directions: a strict count where the count decides entitlement to relief, and a generous one where it decides the size of the base. In practice, 30 trips of the “arrive in the morning, leave the following evening” type produce 60 days for the section 8(1B) test — the entire limit.

Planning to stay “under 60 days” without a daily movement log supported by passport stamps and boarding passes is not a plan. The burden of proof lies on the taxpayer, and the IRD has access to Immigration Department records. Once the trips become regular the question turns from a tax one into an immigration one; the available statuses are set out in Hong Kong Work and Relocation Visas 2026, and a status and structure can be matched to an actual travel pattern with the UPPERSETUP Hong Kong team.

Time apportionment: the formula, leave pay and bonuses

Under a non-Hong Kong employment the chargeable income is annual income multiplied by days of presence in Hong Kong and divided by 365 or 366. The denominator is all calendar days in the basis period, not working days. The method is known as days-in-days-out (DIDO).

The authority is paragraph 29 of DIPN 10:

“For the purposes of quantifying the amount of income derived from services rendered in Hong Kong, the Department will usually look at the number of days an employee spent in Hong Kong and apportion his remuneration including leave pay on a time-in time-out basis. In exceptional circumstances where the application of this basis would be inappropriate a different approach may be adopted.”

Two points follow from that passage. First, leave pay is inside the apportioned amount. Second, the words “usually” and “in exceptional circumstances” mean DIDO is not the only permissible basis.

Recent practice shows how hard it is to displace DIDO in fact. In D18/22 (2022) the Board of Review positively preferred it, calling it practical, objective and certain, and refused to exclude transit days. The one successful departure from it at appellate level concerns not apportionment under section 8(1A)(a) but the exclusion under section 8(1A)(c) — the Lo Wa Ming Patrick case below.

Leave pay is apportioned by a different fraction, based on working days rather than calendar days. The IRD formula is: leave days attributable to Hong Kong = (working days in Hong Kong ÷ total working days) × total leave days.

These are two distinct fractions in the same return, and they are routinely confused. Main remuneration is split by calendar days of presence; leave pay is split by working days.

Bonuses have no dedicated rule. Paragraph 30 of DIPN 10 requires the employee to include “all other remuneration related to his employment” in addition to remuneration received locally. In practice a bonus is apportioned on the same fraction as the main remuneration, but by reference to the period the bonus relates to rather than the year of payment. Where a bonus is documented as relating to a specific project or period outside Hong Kong, the IRD may accept direct attribution under the “exceptional circumstances” qualification. Author’s assessment: the treatment of bonuses is administrative practice rather than rule — there is no DIPN or Board of Review authority specifically on bonuses — so the documentary position must be built in advance.

The hard limit: no apportionment under a Hong Kong employment

A holder of a Hong Kong employment cannot apportion income on a time basis in any circumstances. Paragraph 25 of DIPN 10:

“Thus, once income is caught by section 8(1) there can be no claim for the so-called time apportionment.”

This is what defeated Grewal at both levels. Seeking partial relief under a Hong Kong employment through apportionment is the most common losing strategy in this category of dispute.

There is, however, one route that is often overlooked: partial exclusion is available not under section 8(1) but under section 8(1A)(c), for services rendered in a foreign territory where a comparable tax has been paid. In Commissioner of Inland Revenue v Lo Wa Ming Patrick [2022] HKCA 710, CACV 235/2021 (judgment of 17 May 2022) the Court of Appeal dismissed the Commissioner’s appeal, rejected his primary “day in, day out” formula, accepted his alternative formula and remitted the case to the Board of Review for recomputation. The IRD lists the case among those finalised; there was no appeal to the Court of Final Appeal. The formula accepted was:

excluded income = income × [working days outside Hong Kong + rest days and holidays attributable to services rendered outside Hong Kong] ÷ calendar days

Note the hybrid structure: working days plus attributable rest days in the numerator, calendar days in the denominator. This is neither the classic DIDO formula nor a section 8(1A)(a) apportionment — it is a separate mechanic for section 8(1A)(c).

Directors’ fees: why the 60-day rule does not help

A director’s fee is chargeable to Hong Kong salaries tax if the company’s central management and control is exercised in Hong Kong, irrespective of where the director lives or performs the duties. Paragraph 34 of DIPN 10:

“Fees paid to persons who hold the office of director of a corporation whose central management and control are exercised in Hong Kong, are income arising in or derived from Hong Kong and chargeable to Salaries Tax under the basic charge of section 8(1) irrespective of where the person resides.”

Three consequences follow from that single sentence.

First, the test is central management and control, not the place of incorporation. A BVI company managed from Hong Kong generates a Hong Kong source for its directors’ fees. A Hong Kong-incorporated company genuinely managed from abroad may not.

Second, where the director performs the duties is irrelevant. In D21/13 ((2013-14) Volume 28 IRBRD) the Board of Review said so directly:

“the test lies not in where the particular director exercises his office but in where lies that office” “The office of a director is located in the place where the company is located.” “the real business is carried on where the central management and control actually abides”

Note the decision’s own formulation: the Board speaks of where the company is located, while “central management and control” is how the IRD frames that enquiry in paragraph 34 of DIPN 10 and how commentators gloss the decision. The two are related but not identical in wording. In that case an independent director of an offshore-incorporated company listed on the Stock Exchange of Hong Kong, receiving fees of around HKD 120,000 a year, argued for a foreign source because he performed his duties outside Hong Kong. The Board looked beyond the venue of board meetings to the HKEx listing, the location of shareholders’ meetings, the banking relationships and the location of staff — and found the source to be in Hong Kong.

Third, and most expensive: section 8(1A), and with it the 60-day rule and time apportionment, does not apply to an office. The reason is textual. Section 8(1) charges income from two sources, “any office or employment of profit” and “any pension”. But section 8(1A)(b)(ii) speaks of services “in connection with his employment” — the word “office” does not appear — and section 8(1B) operates only “for the purposes of subsection (1A)”. Neither the outside-services exclusion nor the 60-day rule is therefore technically available to an office holder.

This is stated in paragraph 34 of DIPN 10 itself, not inferred from the wording:

“Neither the extension to the basic charge under section 8(1A), nor the exclusion under section 8(1A)(b) or (c), has any application to directors’ fees. They apply only to income from employment.”

A director’s fee therefore attracts none of the three: neither the extension of the charge under section 8(1A)(a), nor the outside-services exclusion in section 8(1A)(b) with the 60-day rule, nor the foreign tax exclusion in section 8(1A)(c). The major international tax reference works state the position in the same terms.

One qualification is often lost: the bar attaches to the fee for the office alone. Where the same person also holds an employment, the 60-day rule and apportionment remain fully available in respect of the salary under that employment.

The practical effect: a non-resident director of a Hong Kong-managed operating company who attends two board meetings a year and spends four days in Hong Kong pays salaries tax on the whole fee. A colleague who is an employee, with the same four days, pays nothing.

Director and employee in one person: how to split the income

Where an individual holds an office of director and also works under a contract of employment, the income is split by nature: the fee for the office is analysed under section 8(1) by reference to the company’s central management and control, while the salary is analysed separately under the Goepfert criteria, with access to the 60-day rule, apportionment and section 8(1A)(c).

The split must be evidenced: a board or shareholders’ resolution fixing the fee, a separate employment contract, separate payroll processing, separate reporting on form IR56B and in the BIR60 return. Where the cost of such a director is recharged within a group, a transfer pricing question is added on top; it is covered in Transfer Pricing in Hong Kong 2026. Both amounts must survive a commercial reasonableness test — a token fee alongside a very large salary, and the reverse, attract equal attention.

Author’s assessment: there is no dedicated DIPN or Board of Review authority on the dual-capacity split. Where no reasoned and documented split exists, the IRD tends to treat the entire payment as income from a Hong Kong office or employment — the least favourable outcome for the taxpayer.

For groups with a Hong Kong holding company and operations abroad, the separate question is where central management and control actually sits. That is essentially the same enquiry as the place-of-effective-management test used elsewhere; for comparison, how it is applied in the UAE is set out in Place of Effective Management (POEM) in the UAE.

Directors’ fees under double taxation agreements

Hong Kong’s comprehensive double taxation agreements deal with directors’ fees in a dedicated article that preserves taxing rights for the state where the company is resident — the 183-day rule does not apply to them. The standard wording is:

“Directors’ fees and other similar payments derived by a resident of a Party in that resident’s capacity as a member of the board of directors of a company which is a resident of the other Party may be taxed in that other Party.”

Article numbering is not uniform across Hong Kong’s agreements. In the OECD Model Tax Convention, “Directors’ Fees” is Article 16 and “Income from Employment” is Article 15. Most Hong Kong agreements shift the numbering down by one — employment income at Article 14 and directors’ fees at Article 15, as in the agreements with the United Kingdom, the Netherlands and Luxembourg and under the Mainland China arrangement. Agreements that retain a separate independent personal services article are numbered differently: under the Hong Kong–Thailand agreement employment is Article 15 and directors’ fees Article 16. Cite the article number of the specific agreement, never “Article 16” by default.

Paragraph 115 of DIPN 44 states the substance for the Mainland arrangement: a director’s fee may be taxed in the Side of which the company is a resident “irrespective of the period of his stay in either Side or the place where the services are actually rendered”.

There is an important exception that is easy to miss: under some agreements a director’s day-to-day executive remuneration is routed back into the employment article. Article 15(2) of the Hong Kong–Belgium agreement provides that remuneration derived “in respect of the discharge of day-to-day functions of a managerial, technical, commercial or financial nature may be taxed in accordance with the provisions of Article 14, as if such remuneration were remuneration derived by an employee in respect of an employment”. The 183-day rule therefore does not reach a fee paid for board membership, but under some agreements it does reach the executive element of the same person’s remuneration.

The point matters because the 183-day rule familiar from business-travel planning has no application to a director’s fee. A director resident in a treaty partner state cannot invoke the employment income article for the fee — it is governed by a different article that leaves Hong Kong’s taxing right intact.

As at August 2026 the IRD lists 59 concluded comprehensive agreements, of which 51 are in force and eight are signed but not yet in force: Barbados, Cyprus, Jordan, Kyrgyzstan, the Maldives, Nigeria, Norway and Rwanda. A substantial number of the agreements are also modified by the Multilateral Instrument, in force for China including Hong Kong since 1 September 2022, so the text of the agreement alone is not always the operative rule.

Double taxation: section 8(1A)(c), the section 50 credit and what changed from 2018/19

Section 8(1A)(c) excludes from salaries tax income for services rendered in a territory outside Hong Kong where, under the law of that territory, the income is chargeable to tax of substantially the same nature as salaries tax and the Commissioner is satisfied that the person has paid that tax. Both conditions must hold — chargeability under local law and actual payment, by deduction or otherwise:

“(c) … excludes income derived by a person from services rendered by him in any territory outside Hong Kong where — (i) by the laws of the territory where the services are rendered, the income is chargeable to tax of substantially the same nature as salaries tax under this Ordinance; and (ii) the Commissioner is satisfied that that person has, by deduction or otherwise, paid tax of that nature in that territory in respect of the income.”

Since 2018 paragraph (c) opens with the words “subject to subsection (1C) and section 50AA”, inserted by Ord. No. 27 of 2018.

Paragraph 37 of DIPN 10 adds that whether a particular foreign tax is “of substantially the same nature” is a question of fact in each case. The foreign rate and the method of assessment are irrelevant; chargeability and payment are what count.

From the year of assessment 2018/19, section 8(1A)(c) no longer applies to income from services rendered in a territory that has a double taxation arrangement with Hong Kong. The IRD states this in the Guide to Tax Return – Individuals:

“For a year of assessment beginning on or after 1/4/2018, section 8(1A)(c) does not apply to income derived by a person from services rendered in a territory which has made a double taxation arrangement with Hong Kong.”

The provision that does this is the new subsection 8(1C), inserted by the Inland Revenue (Amendment) (No. 6) Ordinance 2018 (Ord. No. 27 of 2018, gazetted 13 July 2018):

“(1C) Subsection (1A)(c) does not apply in relation to income derived by a person from services rendered by the person in a territory if — (a) the territory is a DTA territory (as defined by section 48A); and (b) under section 50, tax payable in the territory by a Hong Kong resident person in respect of income derived from services rendered by him or her in the territory is to be allowed as a credit against tax payable in Hong Kong by the Hong Kong resident person in respect of that income.”

In place of the exclusion, relief is given as a tax credit under section 50 — available only to a person who is a Hong Kong resident for the purposes of the relevant agreement. It applies to tax for years of assessment beginning on or after 1 April 2018. In practice a Hong Kong certificate of resident status has to be obtained before the claim is made: the IRD’s criteria and the procedure are set out in Hong Kong Certificate of Resident Status 2026, and support with the application forms part of UPPERSETUP’s Hong Kong services.

The difference between the two mechanisms is structural and frequently comes as an unwelcome surprise.

Feature	Exclusion under s.8(1A)(c)	Credit under s.50
Legal nature	Income excluded from the tax base	Foreign tax credited against Hong Kong tax
Who can use it	Any person chargeable to salaries tax	Only a Hong Kong resident person under a CDTA
Which territories	Territories without a CDTA with Hong Kong	Territories with a CDTA with Hong Kong
Certificate of resident status	Not required	Normally required to evidence status
Effect at a high foreign rate	Income removed from the base entirely	Credit capped at the Hong Kong tax on that income
Effect for a non-resident of Hong Kong	Available	Not available

The practical consequence is that a non-resident of Hong Kong working in a treaty territory can lose relief altogether — the exclusion is closed to them and the credit is closed by status. It is one of the rare situations in which the existence of a treaty worsens the taxpayer’s position.

Two further requirements introduced by the same Ordinance apply from 2018/19.

Relief may not exceed the amount that would have been granted had all reasonable steps been taken to minimise the foreign tax. This is section 50AA(2), added by the same 2018 Ordinance:

“The amount of any relief from double taxation granted must not exceed the amount of the relief that would be granted had all foreign tax minimization steps been taken.”

The rule covers all three forms of relief at once: the exclusion under section 8(1A)(c), the deduction under section 16(1)(c) and the credit under section 50. In practice it obliges the taxpayer to use every available foreign deduction, exemption and treaty benefit; an unclaimed foreign relief reduces the Hong Kong relief.

Where relief or credit already granted becomes excessive because of an adjustment to the foreign tax, the taxpayer must notify the Commissioner in writing within three months of the adjustment. The provision is section 50AA(5)of Cap. 112: “the person must give the Commissioner written notice of the adjustment within 3 months after the adjustment is made”.

The same Ordinance extended the period for claiming a foreign tax credit from two years to six: under section 50(9)(a) the claim must be made within six years after the end of the year of assessment, or within six months after the date of the notice of assessment, whichever is later.

Where the foreign tax is paid after the Hong Kong objection period has expired, paragraph 39 of DIPN 10 points to section 70A: correction is possible within six years after the end of the year of assessment, or within six months after the date of the notice of assessment, whichever is later.

Leaving Hong Kong: tax clearance, form IR56G and withholding of an employee’s pay

A person chargeable to salaries tax who is about to leave Hong Kong for more than one month must notify the Commissioner in writing at least one month before the expected date of departure — section 51(7). A parallel obligation falls on the employer.

The employer must file form IR56G not later than one month before the employee’s expected date of departure — section 52(6). The form is filed in duplicate and a copy is given to the employee.

From the date of that notification the employer must withhold all money payable to the employee for one month, or until the IRD issues a “letter of release”, whichever is earlier — section 52(7). The withholding covers not only salary but commissions, bonuses, rent and expense reimbursements, and any payment in money or money’s worth.

A “letter of release” is the IRD’s confirmation that the departing employee has settled the tax liability; on production of it the employer may release the withheld sums.

The tax clearance sequence is:

1.        The employee notifies the IRD of the departure date and provides an overseas postal address and contact details.

2.        The employer files IR56G and begins withholding.

3.        The IRD issues returns for the relevant years; the employee completes and files them.

4.        The IRD raises an assessment; the employee pays.

5.        The letter of release is issued and the employer releases the withheld amounts.

Payment clearing times matter here. According to the IRD, payment by cash, EPS or ATM is credited the same day, by PPS or internet about two working days, and by cheque about ten days. Booking a flight for the day after paying by cheque is not advisable.

If further sums fall due to the employee after the letter of release has been issued, the employer files an additional or revised IR56G and a fresh one-month withholding period runs from that filing.

There is an exception to the notification requirement: employees who are required in the course of their employment to leave Hong Kong at frequent intervals need not notify each departure — they file and pay annually in the ordinary way.

Share options deserve separate attention. A gain realised on the exercise, assignment or release of a right to acquire shares obtained by virtue of an employment or office is chargeable when the right is exercised, assigned or released — not when it is granted. Departure from Hong Kong therefore does not extinguish the charge on rights already granted. The IRD permits an election to compute the gain on a “notional exercise” basis before departure, which allows the point to be closed during tax clearance but requires a market valuation at the relevant date.

Where the company leaves Hong Kong along with the individual, closing it down and obtaining the IRD’s Notice of No Objection is a separate procedure, covered in Closing a Hong Kong Company in 2026.

Rates, allowances and deductions: what is actually paid in 2025/26 and 2026/27

Salaries tax is computed twice and the lower amount is payable: at progressive rates on net chargeable income after personal allowances, or at the standard rate on net income, that is assessable income less deductions but before personal allowances.

The progressive rates are unchanged for 2025/26 and 2026/27: 2% on the first HKD 50,000, 6% on the next HKD 50,000, 10% on the next HKD 50,000, 14% on the next HKD 50,000 and 17% on the remainder.

The standard rate has been two-tiered since the year of assessment 2024/25: 15% on the first HKD 5,000,000 of net income and 16% on the remainder. Up to and including 2023/24 a single 15% rate applied. The two-tier scale was introduced by the Inland Revenue (Amendment) (Tax Concessions and Two-tiered Standard Rates) Ordinance 2024 — Ord. No. 10 of 2024, gazetted 31 May 2024.

The one-off reduction for the year of assessment 2025/26 is 100% of the salaries tax charged, capped at HKD 3,000 per case. The measure was announced in the 2026-27 Budget on 25 February 2026; the enabling legislation, the Inland Revenue (Amendment) (Tax Concessions, Concessionary Deductions and Allowances) Ordinance 2026 — Ord. No. 2 of 2026 — was passed by the Legislative Council on 13 May 2026 and gazetted on 22 May 2026. The reduction applies to the final tax for 2025/26 only and does not reduce provisional tax. Where a married couple is jointly assessed, the HKD 3,000 ceiling applies to the couple as a whole rather than to each spouse. For comparison, the equivalent reduction for 2024/25 was capped at HKD 1,500 (Inland Revenue (Amendment) (Tax Concessions) Ordinance 2025, Ord. No. 10 of 2025, gazetted 9 May 2025).

Personal allowances increase from the year of assessment 2026/27.

Allowance / deduction	2025/26	2026/27
Basic allowance	HKD 132,000	HKD 145,000
Married person’s allowance	HKD 264,000	HKD 290,000
Single parent allowance	HKD 132,000	HKD 145,000
Child allowance (each of the 1st to 9th child)	HKD 130,000	HKD 140,000
Additional child allowance in the year of birth	HKD 130,000	HKD 140,000 (HKD 280,000 in total)
Dependent parent / grandparent aged 60 or above	HKD 50,000	HKD 55,000
Dependent parent / grandparent aged 55 to 59	HKD 25,000	HKD 27,500
Elderly residential care expenses (deduction)	HKD 100,000	HKD 110,000
Mandatory MPF contributions	HKD 18,000	HKD 18,000
Voluntary MPF contributions and qualifying annuity premiums	HKD 60,000	HKD 60,000
Self-education expenses	HKD 100,000	HKD 100,000
Home loan interest (basic)	HKD 100,000	HKD 100,000
Domestic rents (basic)	HKD 100,000	HKD 100,000
VHIS qualifying premiums per insured person	HKD 8,000	HKD 8,000

From 2026/27 the additional allowance for a newborn may be claimed for two years after the birth instead of one, allowing a doubled child allowance of HKD 280,000 a year in each of the first two years.

As a benchmark, for a single taxpayer with no dependants in 2026/27 the standard rate becomes relevant at an annual income of approximately HKD 2,132,500, against HKD 2,022,000 previously.

MPF deserves a note in an international assignment context. Exemption from the scheme is available to people who come to Hong Kong to work for not more than 13 months and to members of an overseas retirement scheme. The “60 days” threshold in the MPF rules relates to the length of the employment, not to days of presence in Hong Kong, and must not be confused with the 60-day rule in salaries tax. Contribution mechanics and penalties are covered in The MPF in Hong Kong.

Beyond salary: accommodation, share options and lump sums

Salaries tax reaches not only cash remuneration but perquisites, the rental value of employer-provided accommodation and share option gains.

Employer-provided accommodation is taxed not at cost but through a “rental value” computed at 10%, 8% or 4% of income after deductions (excluding self-education expenses).

Type of accommodation	Rental value rate
A residential unit or serviced apartment	10%
Two rooms in a hotel, hostel or boarding house	8%
One room in a hotel, hostel or boarding house	4%

Two refinements apply. The employee may elect the rateable value of the property instead, where that produces a lower figure. Rent paid by the employee to the employer is deducted in arriving at the rental value.

The critical distinction: a rent refund is taxed through the rental value mechanism, while a cash housing allowance is fully taxable as ordinary income. On identical commercial terms the tax difference can be several-fold, and it turns on the drafting of the contract and on how the payment is administered.

Where the reward is delivered in shares rather than options, stamp duty on the transfer is added to the income tax analysis; the rates and deadlines are in Stamp Duty on Share Transfers in Hong Kong 2026.

Share option gains are charged on exercise, assignment or release, not on grant. On exercise the gain is the open market value of the shares at the date of exercise less the consideration given for the shares and for the right; on assignment or release it is the consideration received less the consideration given for the right. The treatment is explained in DIPN 38.

Lump sums and back pay may be related back on written application; where the period to which the payment relates exceeds three years, the amount is spread evenly over the 36 months ending on the date of entitlement or the last day of employment, whichever is the earlier.

The application is time-limited: under proviso (i) to section 11D(b) it must be made in writing within two years after the end of the year of assessment in which the payment is made. The proviso is reproduced in Board of Review decision D2/19: “shall upon the application in writing of the person entitled to claim payment thereof within 2 years after the end of the year of assessment in which the payment is made be related back”. In practice the application is made with the tax return, and the IRD will relate the sum back only where doing so reduces the overall liability.

Service companies and section 9A: when a “consultant” becomes an employee

Section 9A allows the IRD to recharacterise remuneration paid to a company controlled by an individual as that individual’s employment income where the relationship has the features of employment. It is the anti-disguised-employment provision, explained in DIPN No. 25 (Revised), November 2011 — “Service company ‘Type I’ arrangements”.

Do not confuse this with “Type II” arrangements, which are something else entirely: the deduction of management fees paid by an unincorporated business to a controlled entity, dealt with in DIPN 24 under the profits tax provisions (sections 16(1), 17, 61 and 61A). Similar names, different taxes, different mechanics.

Where section 9A(1) applies, the individual is treated as having an employment of profit with the client, the client is treated as the employer, and the remuneration is treated as employment income received when paid or credited.

Section 9A(1) is disapplied only where all six conditions in section 9A(3) are satisfied:

1.        neither the agreement nor any related arrangement provides for benefits typical of employment — holiday pay, sick pay, retirement benefits, accommodation, education or travel allowances;

2.        if the agreement or a related arrangement does require the services to be carried out personally by that individual, the individual also carries out the same or similar services for persons other than the client, during the term of that agreement;

3.        there is no control or supervision of the kind an employer commonly exercises over an employee’s duties;

4.        the remuneration is neither paid periodically nor calculated on a basis commonly used under a contract of employment;

5.        the client cannot terminate the provision of services in a manner, or for a reason, commonly provided for on the dismissal of an employee;

6.        the individual is not held out to the public as an officer or employee of the client.

Note the structure of condition 2: the statute does not forbid personal performance as such — it requires that, where personal performance is required, the same individual is simultaneously serving other clients. That is why a single-client personal service company fails the test almost automatically.

Even where the conditions are not met, section 9A(4) provides an escape: the Commissioner may decline to apply the provision where the individual shows that carrying out the services was not in substance the holding of an office or employment of profit. Section 9A(7) separately excludes proprietors and partners of unincorporated businesses.

The practical risk concentrates in single-client personal service companies. In Board of Review decision D13/06 a doctor worked for a hospital through an intermediate company; the Board found the section 9A(3) conditions unsatisfied and the substance to be employment. Exclusive full-time engagement, periodic fixed remuneration, client control and the absence of an independent business were decisive.

The key defensive points are multiple clients, a genuine right of substitution, and the absence of employment-style benefits in the contract.

Deadlines, forms and penalties: the compliance calendar

The salaries tax calendar runs on the year of assessment from 1 April to 31 March and on the dates the Inland Revenue Department issues its returns.

Obligation	Who	Deadline	Provision
Notify chargeability where no return has been received	Taxpayer	Not later than 4 months after the end of the basis period (31 July for salaries tax)	s.51(2)
Notify departure from Hong Kong for more than 1 month	Taxpayer	Not later than 1 month before departure	s.51(7)
Notify a change of address	Taxpayer	Within 1 month	s.51(8)
Notify an adjustment to foreign tax that makes relief or credit excessive	Taxpayer	Within 3 months of the adjustment	s.50AA(5)
Claim a foreign tax credit	Taxpayer	6 years after the end of the year of assessment, or 6 months after the notice of assessment, whichever is later	s.50(9)(a)
Apply to relate a lump sum back	Taxpayer	2 years after the end of the year of assessment in which the payment is made	proviso (i) to s.11D(b)
Return BIR60 for 2025/26	Taxpayer	Issued 4 May 2026; filing by 4 June 2026, or by 4 July 2026 if filed electronically	s.51(1)
Return BIR60 for 2025/26, sole proprietors	Taxpayer	By 4 August 2026, or 4 September 2026 if filed electronically	s.51(1)
Employer’s Return BIR56A with forms IR56B for 2025/26	Employer	Issued 1 April 2026; filing within 1 month	s.52(2)
IR56E — new employee	Employer	Within 3 months of commencement	s.52(4)
IR56F — cessation of employment	Employer	Not later than 1 month before cessation	s.52(5)
IR56G — employee about to leave Hong Kong	Employer	Not later than 1 month before departure	s.52(6)
Withhold all payments to a departing employee	Employer	1 month from filing IR56G, or until the letter of release	s.52(7)

Directors, married persons and part-time employees must be reported on form IR56B regardless of the amount paid; single employees must be reported where income exceeds HKD 132,000 for 2025/26, the basic allowance for that year. Where the employment covered less than a full year the threshold is reduced proportionately.

The salaries tax calendar dovetails with the company’s own annual cycle — the NAR1 annual return, the audit and the profits tax return; the combined schedule is in Mandatory Annual Compliance for Hong Kong Companies 2026.

Penalties.

Default	Provision	Maximum penalty
Employer’s failure to comply with ss. 52(2) and 52(4)–(7)	s.80(1)	Fine of HKD 10,000 (level 3); the court may order the act to be done
Failure to file on time, incorrect return or incorrect information without reasonable excuse	s.80(2)	Fine of HKD 10,000 and a further fine of treble the tax undercharged
Wilful evasion of tax	s.82(1)	Fine of HKD 50,000, a further fine of treble the tax undercharged, and imprisonment for up to 3 years
Administrative penalty in lieu of prosecution	s.82A	Additional tax of up to treble the tax undercharged

Provisional salaries tax is payable in two instalments: about 75% in January of the year of assessment and about 25% in the following April. The basis is section 63C. Provisional tax is computed on the preceding year’s income and is not a tax on future income.

An application to hold over provisional tax under section 63E must be lodged not later than 28 days before the due date for payment, or 14 days after the date of issue of the notice for payment, whichever is later. Grounds include net chargeable income falling below 90% of the preceding year’s figure, cessation of employment income before the end of the year, allowances and deductions not taken into account, and an objection lodged against the preceding year’s assessment.

For a departing employee this deserves particular attention: where employment ceases mid-year, provisional tax based on a full preceding year is almost always overstated and should be reduced by a section 63E application rather than overpaid and reclaimed.

Step-by-step: how to determine the position for a given year of assessment

Step 1. Identify the nature of the income. A director’s fee is analysed separately from salary. Where both roles are held, split the amounts on documentation before the year of assessment closes, not retrospectively.

Step 2. For a director’s fee, establish where central management and control is exercised. Place of incorporation, the director’s residence and the venue of board meetings do not individually settle the question. Build the evidence: minutes recording where meetings were held, the composition and location of the board, where strategic decisions are taken, where banking is conducted, where key personnel sit.

Step 3. For salary, locate the employment. Test the three IRD factors — where the contract was negotiated, entered into and is enforceable; where the employer is resident; where remuneration is paid — then test yourself against the totality of facts: who directs the employee, who bears the cost of the remuneration, who decides on dismissal.

Step 4. Build a day-by-day movement log for the year of assessment from 1 April to 31 March. For the 60-day test, count arrival and departure as two days. For apportionment, count them as one. Reconcile the log to passport stamps and boarding passes.

Step 5. Test the character of the presence, not only its length. If the Hong Kong period is the start or the finish of a long period of residence, the 60-day rule fails even at 20 days.

Step 6. Select the applicable mechanism. Hong Kong employment with all services outside Hong Kong and visits of 60 days or fewer — full exemption under sections 8(1A)(b)(ii) and 8(1B). Non-Hong Kong employment with visits exceeding 60 days — apportionment. Services in a foreign territory where a comparable tax has been paid — exclusion under section 8(1A)(c) for non-treaty territories, or a section 50 credit for treaty territories where Hong Kong tax residence is available.

Step 7. Complete the exemption section of the Appendix to return BIR60 and attach the computation, a full itinerary with arrival and departure dates, the contract, the assignment letter and receipts for foreign tax paid.

Step 8. Review provisional tax and lodge a section 63E holdover application within the statutory window if the grounds are met.

Step 9. On departure, start tax clearance at least one month ahead and agree the withholding period with the employer.

Common mistakes and what they cost

Mistake 1: treating 60 days as a day-count safe harbour. The rule applies to visits only. A person who moves to Hong Kong in January and spends 50 days there before the year of assessment ends falls outside it — paragraph 33 of DIPN 10 names exactly that situation. The cost is the whole year’s income taxed instead of nothing, plus additional tax of up to treble the undercharge under section 82A where the position is treated as an incorrect return.

Mistake 2: counting nights instead of days, or ignoring part days. D40/07 confirms that any part of a day of presence is a whole day and that arrival and departure are two days for the section 8(1B) test. Thirty overnight round trips exhaust the 60-day limit completely. In that case the 2002/03 assessment was confirmed on net chargeable income of HKD 21,995,003, with tax payable of HKD 3,299,250.

Mistake 3: claiming time apportionment under a Hong Kong employment. Paragraph 25 of DIPN 10 and the outcome in Grewal (CACV 3/2024, appeal dismissed on 9 May 2025) close that route. The cost is not only the assessment but years of litigation on a position that was unwinnable from the outset.

Mistake 4: applying the 60-day rule to a director’s fee. Paragraph 34 of DIPN 10 excludes directors’ fees from the extension in section 8(1A) and from the exclusions in section 8(1A)(b) and (c) alike. A non-resident director of a Hong Kong-managed company pays tax on the whole fee even with four days of presence. The cost is a full underpayment across every year the IRD may reopen, plus penalties.

Mistake 5: relying on section 8(1A)(c) for work in a treaty territory. Since 2018/19 section 8(1C) shuts the exclusion out of those territories, and the section 50 credit is confined to Hong Kong residents. A non-resident who has paid tax in a treaty state may end up with no relief at all — full double taxation of the same income.

Mistake 6: leaving tax clearance to the last week. The employer must withhold all payments for a month from the filing of IR56G. Failure to file exposes the employer to a HKD 10,000 fine under section 80(1); for the employee it means frozen pay, no letter of release and an open liability in a jurisdiction already left behind. This mistake is rarely measured in tax — it is measured in a disrupted relocation.

Who this suits, who it does not, and when to get advice

The Hong Kong position rewards those whose employment is genuinely located outside Hong Kong, and those whose work under a non-Hong Kong employment is genuinely performed elsewhere.

Suits:

•          Regional managers on a non-Hong Kong employment spending up to 60 days a year in Hong Kong — full exemption where the character of presence holds up.

•          Employees of Hong Kong companies posted abroad for a full year — paragraph 32 of DIPN 10 delivers full exemption where visits stay within 60 days.

•          High earners working in Hong Kong — even on full chargeability the effective rate is capped at 15–16% under the standard rate, with no tax on dividends, capital gains or estates.

•          Owners of international groups splitting functions across jurisdictions — the Hong Kong and Middle East combination is analysed in Hong Kong + UAE: Dual Structure for International Business 2026.

Does not suit:

•          Directors of companies centrally managed and controlled in Hong Kong who expect relief based on day counts — the mechanism is closed to them.

•          Anyone planning to “optimise” by signing a contract abroad while the employer and the reporting line remain in Hong Kong — paragraph 12 of DIPN 10 and Board of Review practice reject such arrangements.

•          Consultants serving a single client through a personal company — section 9A recharacterises the fee as employment income.

Professional review is essential where:

•          an individual holds both an office of director and an employment in the same or related companies;

•          presence in Hong Kong falls in the 45 to 75 day range in a year of assessment — the cost of a counting error is the entire year’s tax;

•          the individual moves to or from Hong Kong mid-year;

•          foreign tax has been paid on the same income, particularly in a treaty territory;

•          share options or share awards were granted before departure;

•          a single employment is being restructured into a dual employment.

Where the structure is still being designed, the starting point is the jurisdiction and the form of presence: the basic parameters of a Hong Kong company and its annual obligations are set out in Hong Kong Company Registration 2026, and immigration status in Hong Kong Work and Relocation Visas 2026.

FAQ

Do I pay Hong Kong salaries tax if I work for a Hong Kong company remotely from another country? If the employment is located in Hong Kong, the whole income is chargeable regardless of where the work is done. Relief is available only in full, under sections 8(1A)(b)(ii) and 8(1B), where in the year of assessment all services were rendered outside Hong Kong and visits to Hong Kong did not exceed 60 days and were genuinely visits. There is no partial time-based relief under a Hong Kong employment.

How many days can I spend in Hong Kong without paying tax? Up to 60 days of visits in the basis period for the year of assessment — but only if all services under the employment were rendered outside Hong Kong and the presence really is a visit. Arrival and departure count as two separate days, and any part of a day counts as a whole day.

Does a non-resident director of a Hong Kong company pay tax? Yes, if the company’s central management and control is exercised in Hong Kong. The fee is chargeable in full under the basic charge of section 8(1), irrespective of where the director lives or how many days are spent in Hong Kong. The 60-day rule and time apportionment do not apply to directors’ fees.

What should I do if I am both a director and an employee? Split the payments by nature and evidence the split: a resolution fixing the fee, a separate employment contract, separate payroll processing and separate reporting on form IR56B. The fee is analysed by reference to the company’s central management and control; the salary is analysed by reference to the location of the employment, with access to the 60-day rule and apportionment.

How is tax calculated if I work in Hong Kong for only part of the year? Under a non-Hong Kong employment the chargeable income is annual income multiplied by days of presence in Hong Kong and divided by 365 or 366. Leave pay is apportioned on a separate fraction — working days in Hong Kong over total working days.

What must I do before leaving Hong Kong? Notify the IRD at least one month before departure if you are leaving for more than one month; obtain a copy of form IR56G from your employer; file the returns for the relevant years; pay the assessed tax and obtain the letter of release. The employer must withhold all payments for one month from the filing of IR56G or until the letter of release is issued.

Can I offset tax paid abroad against Hong Kong salaries tax? Yes, but the mechanism depends on the territory. For territories without an agreement with Hong Kong, the income is excluded from the base under section 8(1A)(c). For territories with an agreement, only a section 50 credit is available from 2018/19, and only to Hong Kong tax residents. Relief is capped at the amount that would have been due had all reasonable steps been taken to minimise the foreign tax.

Are share options taxable after I have left Hong Kong? Yes. A gain on a right to acquire shares granted by virtue of an employment or office is charged on exercise, assignment or release, not on grant, and departure does not extinguish the charge. An election to compute the gain on a notional exercise basis before departure allows the point to be settled during tax clearance.

Is salaries tax withheld from pay in Hong Kong? No — not on wages, not on directors’ fees, and not for residents or non-residents. The employer files the IR56 series of returns and the employee pays on receipt of a notice of assessment. The only exception is the temporary retention of all payments when an employee leaves Hong Kong under section 52(7), which is a tax-clearance hold rather than a withholding tax. Hong Kong does operate retention mechanisms, but they belong to profits tax: royalties and payments to non-resident entertainers and sportspersons under section 20B.

Key points to remember

Residence is irrelevant to salaries tax; the source of the employment is what matters. Residents and non-residents are taxed in the same way.

The place where services are performed does not determine the source. It determines only the size of the base under a non-Hong Kong employment.

A Hong Kong employment is all-or-nothing: either full chargeability or full exemption where all services are rendered outside Hong Kong and visits stay within 60 days. Time apportionment is not available.

The 60-day rule tests the character of presence, not merely its length. Presence that is not a visit defeats the relief however few the days.

Days are counted differently in the two tests: arrival and departure are two days for the 60-day rule and one day for apportionment.

A director’s fee follows the company’s central management and control; paragraph 34 of DIPN 10 shuts section 8(1A) out of directors’ fees entirely — the 60-day rule and the foreign tax exclusion alike.

Since 2018/19 section 8(1C) closes the section 8(1A)(c) exclusion for treaty territories; the substitute is a section 50 credit available only to Hong Kong tax residents, and any relief is capped by section 50AA(2).

Leaving Hong Kong is a procedure with fixed deadlines: notice one month ahead, form IR56G, a one-month withholding of all payments, and the letter of release.

Summary

Hong Kong salaries tax is charged on a territorial basis on income from an office, employment of profit or pension arising in or derived from Hong Kong under section 8(1) of the Inland Revenue Ordinance (Cap. 112); residents and non-residents are taxed identically, and the year of assessment runs from 1 April to 31 March. The source of income is the place where the employment is located, not where services are performed (CIR v Goepfert, 2 HKTC 210; DIPN 10 Revised, June 2007). Under a Hong Kong employment the entire income is chargeable with no apportionment, but full exemption is available under sections 8(1A)(b)(ii) and 8(1B) where all services are rendered outside Hong Kong and visits to Hong Kong do not exceed 60 days in the basis period; under a non-Hong Kong employment only income for services rendered in Hong Kong is chargeable, computed as annual income multiplied by days of presence and divided by 365. For the 60-day test the day of arrival and the day of departure count as two days and any part of a day counts as a whole day (D40/07); for apportionment the day of leaving Hong Kong and the day of returning count as one day (IRD PAM 42(e), April 2026). The rule applies only to “visits” and is closed to Government employees and ship and aircraft crew, and to office holders: a director’s fee is chargeable in full where the company’s central management and control is exercised in Hong Kong (DIPN 10, paragraph 34; D21/13). From the year of assessment 2018/19 section 8(1C), inserted by Ord. No. 27 of 2018, disapplies the section 8(1A)(c) exclusion for treaty territories, where relief instead takes the form of a section 50 credit available only to Hong Kong resident persons; any relief is capped by section 50AA(2) and an adjustment to the foreign tax must be notified to the Commissioner within three months under section 50AA(5). Rates: progressive bands of 2%, 6%, 10%, 14% and 17%; a two-tiered standard rate of 15% on the first HKD 5,000,000 and 16% on the remainder; basic allowance HKD 132,000 for 2025/26 and HKD 145,000 from 2026/27; a one-off reduction of 100% of the 2025/26 tax capped at HKD 3,000 per case. On leaving Hong Kong for more than one month the taxpayer notifies the IRD one month in advance (section 51(7)), the employer files form IR56G one month before departure (section 52(6)) and withholds all payments for one month or until the letter of release is issued (section 52(7)).

How UPPERSETUP can help

Determining the source of employment income, running the 60-day count and building an exemption position are not a single-call exercise: they require documentary support throughout the year of assessment, not at the moment the return is filed. UPPERSETUP handles Hong Kong company incorporation and administration, payroll, the IR56 series of returns and the tax clearance procedure on departure.

Discuss your structure — Hong Kong business setup and support with UPPERSETUP.

Related reading: Payroll and Employer Obligations in Hong Kong 2026 · Territorial Taxation and Offshore Status in Hong Kong 2026 · Certificate of Resident Status and the CDTA · Transfer Pricing in Hong Kong 2026 · Hong Kong + UAE: Dual Structure for International Business 2026

Sources

Legislation and official texts

1.        Inland Revenue Ordinance (Cap. 112) — Hong Kong e-Legislation

2.        Gazette text of the Inland Revenue (Amendment) (No. 6) Ordinance 2018 (Ord. No. 27 of 2018) — inserting s.8(1C) and s.50AA

3.        Gazette text of the Inland Revenue (Amendment) (Tax Concessions and Two-tiered Standard Rates) Ordinance 2024 (Ord. No. 10 of 2024)

4.        IRD — full schedule of amendments to Cap. 112 with ordinance numbers and gazette dates

5.        IRD — Inland Revenue (Amendment) (No. 6) Ordinance 2018: key elements and effective dates

6.        Hong Kong Government — tax measures proposed in the 2026-27 Budget, 25 February 2026

7.        Hong Kong Government — tax concessions bill passed by the Legislative Council, 13 May 2026

Inland Revenue Department guidance

8.        DIPN No. 10 (Revised, June 2007) — The Charge to Salaries Tax

9.        DIPN No. 17 — The Taxation of Persons Chargeable to Profits Tax on Behalf of Non-Residents (s.20B retention)

10.    DIPN No. 24 (Revised) — Service company “Type II” arrangements

11.    DIPN No. 25 (Revised, November 2011) — Service company “Type I” arrangements – Salaries Tax

12.    DIPN No. 38 (March 2008) — Salaries Tax: Employee Share-Based Benefits

13.    DIPN No. 44 — the Mainland China–Hong Kong arrangement

14.    Full list of Departmental Interpretation and Practice Notes

15.    IRD — New Requirements Relating to Double Taxation Relief – Salaries Tax

16.    IRD — 2026-27 Budget: tax measures and the 2026-27 Budget FAQ

17.    IRD — 2025-26 Budget: tax measures

18.    IRD — Allowances, Deductions and Tax Rate Table (PAM 61)

19.    IRD PAM 42(e) (April 2026) — A guide to Salaries Tax for people coming to work in Hong Kong

20.    IRD PAM 46(e) (April 2026) — You or your employee is going to leave Hong Kong

21.    IRD IR6158 — Tax Clearance: Things to be done / noted by Employer and Employee

22.    IRD — form IR56G and the Notes and Instructions for form IR56B

23.    IRD — Guide to Tax Return – Individuals (BIR60)

24.    IRD — Obligations of an Employer and the newspaper notice of taxpayers’ and employers’ obligations (2024)

25.    IRD — Rental value of accommodation provided by an employer

26.    IRD — Notification of chargeability

27.    IRD — Penalty Policy

28.    IRD — Status of Tax Cases: pending cases (updated 31 July 2026) and finalised cases

29.    IRD — Taxpayer who is about to leave Hong Kong and the departure FAQ

30.    IRD — Comprehensive Double Taxation Agreements concluded

31.    Hong Kong–Belgium agreement (Articles 14 and 15)

32.    Synthesised text of the Hong Kong–United Kingdom agreement and the Hong Kong–Thailand agreement

33.    IRD — press release on the issue of 2025/26 individual tax returns, 4 May 2026

34.    Hong Kong Government — issue of 2025-26 employer’s returns, 1 April 2026

GovHK

35.    Salaries tax rates

36.    Full and partial exemption of employment income

37.    Taxation of non-residents working in Hong Kong

38.    Holding over of provisional tax

39.    Back pay, gratuities and lump sums

Board of Review decisions

40.    Case No. D40/07 — the 60-day rule, day counting and the confirmed 2002/03 assessment

41.    Case No. D18/22 (Volume 36) — dual employment, days-in-days-out apportionment, transit days

42.    Case No. D10/20 — text of ss. 8(1), 8(1A)(c) and 8(1B)

43.    Case No. D2/19 — text of ss. 11B, 11C and 11D and the relate-back proviso

44.    Case No. D27/03 — text of ss. 8(1), 8(1A) and 8(1B) and the meaning of “visit”

45.    Case No. D21/13 — source of directors’ fees

46.    Case No. D87/00 — the outcome in CIR v Goepfert

47.    Case No. D125/02 and Case No. D40/90 — criticism of the three-factor test

48.    Case No. D54/09 — location of employment and immigration records

49.    Case No. D13/06 — application of section 9A and Case No. D108/01 — text of section 9A(3)

50.    Case No. D45/09 — text of section 8(2)(j) and the counting of airport transit days and Case No. D11/97 — text of section 8(1A)

51.    Index of published Board of Review decisions

Other official sources

52.    Mandatory Provident Fund Schemes Authority — MPF coverage and exemptions

Commentary and cross-checking (tier 2)

53.    KPMG — CIR v Lo Wa Ming Patrick: apportionment of income for double taxation relief

54.    KPMG China Tax Alert 27/2023 — salaries tax and the time-apportionment basis (Grewal)

55.    KPMG — corporate residence determines the source of directors’ fees (D21/13)

56.    PwC Worldwide Tax Summaries — Hong Kong SAR, Individual: Taxes on personal income

57.    PwC — Hong Kong Tax Facts and Figures 2026/27

Disclaimer

This material is for information purposes only and does not constitute legal, tax, financial, investment or consulting advice. Before taking any decision, individual professional advice should be obtained, taking into account the specific circumstances, the jurisdiction, the status of the company and the current requirements of the regulators.

Last updated: August 2026.