Preferential Hong Kong Salaries Tax treatment on provision for rent-free or subsidized accommodation

Under current prevailing Hong Kong tax law, for an employer provides rent-free or subsidized accommodation to the employee, or for the employer wholly or partly reimburses the rent paid by the employee under a lease entered by the employee, instead of taxing the employee on the actual amount of rent paid or reimbursed by the employer, the Inland Revenue Ordinance specifies a calculation of rental value (“RV”) to be treated as taxable value of housing.

To compute the RV, rent paid by the employee to the employer or the landlord can be deducted to arrive at the RV.

The RV is calculated at 4%, 8% or 10% (*) of his/her total net income from the employer and the associated corporation after deducting outgoings and expenses (excluding expenses of self-education), depending on the type of accommodation provided.

(*): Depends on the types of accommodation

However, if the employer does not control how the employee would spend the money or has not exercised proper control over the expenditures, the Assessor will regard the reimbursements as cash allowance and include the full amount as income in the Assessable Income.

Proper control means;

  • a clearly defined system is in place, under which the ranks of those officers who are entitled to rental reimbursements and the limit of their respective entitlements are clearly laid down;
  • mode of housing benefit entitled by the employee and the limit of rental reimbursement are clearly specified in the contract of employment;
  • employer will examine the tenancy agreement and rental receipts and verify the actual payment of rent against the tenancy agreement at regular intervals, and also retain the relevant documents for record purpose.

Simple illustration for tax saving under preferential treatment on rent-free accommodation vs housing allowances:

For the year of assessment from 1 April to following 31 March;

  • A has a total salary of HKD1,000,000
  • Preferential treatment: His employer pays for his housing at a flat leased under the employer name at a total cost of HKD500,000 or
  • Housing allowance: His employer pays a housing allowances of HKD500,000

Mr. A’s total income subject to Hong Kong salaries tax is:

Preferential treatment on rent-free accommodation (HKD)

Housing allowances (HKD)




Rental Value of Accommodation, 10% on all other income (in this case 1,000,000)


Housing Allowance


Total Assessable Income



As can be seen by comparing the two, although the total costs of the employer is the same, being HKD1,500,000, the assessable income of the employee is significantly reduced when it is determined that the employer is providing accommodation to the employee.

For any tax advice in relation to the above, we are happy to assist.

Fidinam (Hong Kong) Limited
Room 1501, Prosperity Tower
39 Queen’s Road,
Central, Hong Kong
Tel:(852) 2110 0990

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