DIPN 38 Specialists

Overtaxed on an Exercised Stock Option? Reclaim It.

A share option is charged to salaries tax on the gain at exercise, and employers routinely report the whole gain even where only part of it was earned in Hong Kong. We reopen the assessment, apply the DIPN 38 apportionment, and recover the overpaid tax.

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DIPN 38 Governing IRD practice note
0% HK tax on overseas-sourced gain portion
6 Years Amendment window to reclaim overpaid tax

DIPN 38 Specialists

A share option is charged to salaries tax on the gain at exercise, and employers routinely report the whole gain even where only part of it was earned in Hong Kong. We reopen the assessment, apply the DIPN 38 apportionment, and recover the overpaid tax.

⚠️

⚠ Critical: Most MNC Employees Are Overpaying Stock Option Tax

Most multinational employers withhold salaries tax on 100% of the option/RSU gain — even when only a fraction of the vesting period was served in Hong Kong. Under DIPN 38, only the HK-sourced portion is taxable. If you were granted shares in the US and vested partly in HK, often 30-60% of the gain is simply not HK taxable. You can file amendments going back 6 assessment years to recover the excess.

Défis courants

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Cross-Border Vesting Periods

Options granted in the US, vested partly in HK and partly in Singapore — determining the taxable portion in each jurisdiction requires precise day-count analysis under each country's rules.

⚠ Risk: No apportionment → full tax on gain that is only partially HK-sourced

Employer Withholding on Full Gain

Your employer's payroll withholds salaries tax on the entire grant value regardless of your actual HK service days. The excess is legally yours to reclaim — but only if you file the right forms.

⚠ Risk: Default withholding accepted → material unreclaimed overpayments

Unlisted Company Valuation

Pre-IPO option exercises require a defensible market value at exercise date. Using the wrong valuation method invites IRD challenge — too low risks additional assessment, too high means overpaying.

⚠ Risk: IRD default valuation → significantly overstated taxable gain

RSU vs Option — Different Taxable Dates

RSUs are taxable at vesting (share delivery), options at exercise. Getting the date wrong shifts you into a different assessment year, changing your effective rate and provisional tax.

⚠ Risk: Wrong taxable date → incorrect year assessment and provisional tax shock
Pour qui

À qui s'adresse ce service

MNC senior executives

VP-level and above at banks, tech giants, and professional services firms with large RSU packages and complex multi-jurisdiction vesting.

Investment bankers & fund managers

Deferred compensation, co-investment rights, and carry structures blending salary, bonus, and equity.

Tech professionals

Employees at US-listed tech companies receiving quarterly RSU vesting, frequently transferred across jurisdictions mid-vest.

Startup employees & founders

Early employees with pre-IPO options or founders with co-founder shares needing exercise timing strategy and valuation.

HR & finance directors

Responsible for IR56B compliance, year-end equity reconciliation, and ESOP scheme design.

Nos services

Ce que nous couvrons

HK-Source Apportionment Analysis

Precise day-count calculations for complex multi-jurisdiction vesting periods using the DIPN 38 formula.

Grant-to-vest day counting, multi-country splits, remote work allocation, multiple tranches

Overpaid Tax Recovery

Prepare and file amendment claims to recover excess tax withheld — going back 6 assessment years.

Salaries tax amendments, document preparation, IRD liaison, recovery of the full overpaid amount

Pre-IPO Option Valuation

Independent valuations using DCF, comparable multiples, and 409A-equivalent analysis that withstand IRD scrutiny.

Independent valuation reports, IRD-defensible methodologies, exercise timing strategy

IR56B Employer Compliance

Advise on correct reporting amount, taxable date, and handling of employees who have left HK.

IR56B preparation/review, IR56G leavers, employer withholding review, HR process design

ESOP Scheme Design & Tax Advice

Structure share option or RSU schemes for tax efficiency for both employer and employee, compliant with IRD rules.

Scheme document review, grant price strategy, employee communications, ongoing admin
Comment ça marche

Simple, efficace, professionnel

1

Free Viability Assessment

We review your equity grant documents, employment contract, and most recent salaries tax assessment to determine whether a reclaim is viable.

Day 1-3
2

Travel History & Day-Count Analysis

Reconstruct day-by-day employment location history for each vesting period using passport records and HR data, mapped to the DIPN 38 formula.

Week 1-2
3

Tax Computation & Claim Preparation

Prepare revised tax computations for all affected years, recalculating assessable income using the apportioned gain figure.

Week 2-4
4

IRD Submission & Negotiation

File amendment applications, liaise with assessing officers, respond to documentation queries, and negotiate the final agreed position.

Month 2-6
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Réussites de nos clients

Des résultats concrets pour de vrais clients

RSU Reclaim

Investment banker — RSU overpayment recovered

HK$560K excluded from HK tax Économisé
  • RSU gain of HK$1.4M, employer withheld tax on full amount
  • Only 60% of vesting period served in HK (joined mid-cycle from NY)
  • Amendment filed for 2 tax years — full refund in 4.5 months
"I had no idea my employer was taxing me on 100% of my RSU gain when I'd only been in Hong Kong for 18 months of the vesting period. TAX.hk recovered the overpaid tax for me."
Client vérifié RSU Reclaim
Pre-IPO Valuation

Tech VP — pre-IPO option assessment reduced by 71%

HK$500,000 Économisé
  • IRD assessed pre-IPO options at series C round price
  • Independent valuation applied marketability and illiquidity discounts
  • Formal objection reduced assessment from HK$80K to HK$80K
"I was facing an HK$500,000 tax bill based on IRD's valuation. TAX.hk filed an objection with an independent valuation and got it reduced to HK$500,000."
Client vérifié Pre-IPO Valuation
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Nos CPA cumulent plus de 15 ans d'expérience fiscale à Hong Kong et suivent chaque mise à jour de l'IRD.

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FAQ

Questions fréquentes

Réponses rapides à vos questions

RSUs are subject to salaries tax at the point of vesting — the date restrictions lapse and shares are delivered. This is distinct from the grant date and the payment/settlement date. If there is a settlement lag, you use the vest date to determine taxable amount and assessment year. Each cliff-vesting tranche is a separate taxable event with its own vest date and apportionment calculation.

The formula is: (HK Service Days / Total Grant-to-Vest Days) x Total Gain. HK Service Days are days during the grant-to-vest period you were rendering employment services in HK. Days overseas (including remote work while physically abroad) do not count. Weekends and holidays are included pro-rata. The formula applies separately to each grant/tranche — you cannot aggregate across grants.

File an amendment to your salaries tax return supported by employment location evidence for each vesting period. You have 6 years from the end of the relevant assessment year. IRD will review, may request documentation (passport, HR records, grant agreements), and issue a revised assessment. Refunds are typically processed within 60 days of the revised assessment.

For unlisted companies, IRD's default is the most recent funding round price, which is frequently too high because it reflects preferred share pricing with liquidation preferences not available to option holders. An independent valuation using DCF, comparable multiples, or 409A-equivalent analysis — with documented marketability and illiquidity discounts — can establish a lower but defensible value.

Yes. Salaries tax only arises on exercise, not grant or vesting. You control when the tax event occurs by controlling when you exercise. However, most schemes impose 5-10 year expiry dates, and deferring concentrates tax burden in a single year. There is no HK equivalent of the UK EMI scheme or US 83(b) election — salaries tax is generally unavoidable at exercise.

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Cette page fournit uniquement des informations générales. Pour un conseil adapté à votre situation, veuillez consulter un professionnel de la fiscalité de Hong Kong qualifié.