Hong Kong Director of Multiple Companies Tax — Expert Advisory

Director fees received from a Hong Kong company are assessable as employment income under salaries tax (not profits tax) — the IRD treats directors as employees for salaries tax purposes regardless of whether they have a separate service contract. Director fees paid to a director by a company are deductible to the company as a business expense provided they are genuine remuneration for services and not excessive relative to the services provided.

The optimal balance depends on the company's profit level and the director's personal tax rate. Generally: salary is deductible by the company (reducing profits tax) and assessable to the director (salaries tax up to 15%); dividends are not deductible by the company but are received tax-free by the director in HK (no dividend tax). For directors in the top salaries tax bracket, retaining profits in the company at 8.25-16.5% and eventually distributing as capital can be more efficient than taking all income as salary.

Director loans from a HK company to its director (or their associates) are not subject to deemed income provisions in HK (unlike the UK). However, if the loan is interest-free or below-market interest, the IRD may argue there is a taxable benefit equal to the interest benefit. There is also stamp duty on loan agreements. Director loans should be documented properly and either charged at arm's length interest or structured as part of the director's compensation arrangement. Outstanding director loans are a red flag in IRD audits.

A director who also provides consulting services to the company — separate from their directorial duties — can potentially receive separate consulting fees that are assessable as profits tax income (if through their own company or self-employment) rather than salaries tax. However, the IRD will scrutinise such arrangements carefully to ensure the consulting services are genuinely separate from the director's employment duties. The nature of the services, how they differ from directorial responsibilities, and whether they are provided through a separate entity are all relevant.

All employment income from all employers (including all directorships) must be reported on the annual BIR60 salaries tax return. Each employment is listed separately with the total emoluments from that employer. If one or more companies are operated under personal assessment (filing profits tax as sole proprietor), that income is also included in the personal assessment election. The total tax is then computed on the combined income with personal allowances deducted. For complex multi-entity situations, a specialist should review the overall tax position.