Nair & Co.

Hong Kong Alters Tax Deduction on Recharge of Share-based Payments


Sunnyvale, CA -- (SBWIRE) -- 04/18/2012 -- The Inland Revenue Department (IRD) announced that it has changed its stance on the long disputed tax deduction of inter-group recharge of employee stock options.

In the current scenario, for example, where employees receive share based compensation from a group company either based in Hong Kong or overseas, often known as the ‘issuing entity’, the issuing entity will regain the costs associated with disseminating such share based benefits from the Hong Kong based company. However, a recent statement from the IRD indicated that it has altered its position on the deductibility of taxes for intergroup recharge for share options or share awards. IRD had, in the past, disapproved the deduction of such inter-group regain/recharge of share-related compensations if new shares were issued to fulfill the option obligations.

Changes in Deduction of Recharge 

Recharge related to new issue of shares as well as acquisition of shares will be considered as expenses if certain conditions are met and allowed. A written recharge agreement is mandatory. The tax deduction timing will take place at the point of exercise of the stock options or when the share awards are given. The deduction amount claimed should not be more than the open market value of the shares acquired at the date when the options are exercised or the awards are vested less the amount or value of consideration given by the grantee/awardee. Deductions made before any of the stock options or award shares are forfeited or cancelled should be written back as a trading receipt and will be subject to assessment.

Please call/email for more details.
Get the latest press releases and updates on international tax, compliance and other legal news at Nair & Co. Industry Alerts.