Question

Benedict, a UK resident, has recently been offered a job in Big Tree Ltd ("BTL"), a company listed on the Hong Kong Stock Exchange and carrying on business in Hong Kong, for a term of three years commencing on 1 July 2022. He will receive the following remuneration package proposed by BTL, and is allowed to propose alternate package provided that the total cost to BTL remain unchanged.

1. Monetary remuneration:
Salary: HK$150,000 x 12 months x 3 years
Bonus: HK$200,000 per year
Sign-on bonus: HK$300,000 (payable on signing) Contract gratuity: HK$810,000 (payable on completion of contract)
2. He and his family members are eligible to join the company’s medical insurance scheme without cost. The annual insurance premium of HK$30,000 will be paid by BTL.
3. He will be granted a share option to take up 100,000 shares in BTL at HK$10 per share. The option will be granted after he has served the company for one complete year.
4. Either party must give three months’ notice to the other party for early termination of the employment contract, or a payment in lieu of notice. If the contract is terminated by BTL in the first two years, BTL will additionally pay HK$1 million to Benedict as compensation
5. Lastly, he is not allowed to work for any company engaged in the same business or industry in Hong Kong for a period of 12 months from the date he leaves BTL.
Benedict will be based in Hong Kong but he is required to travel to China for significant period of time, the extent of which is not certain at the time of signing the contract. He is married and has a son, aged 10. Benedict plans to leave Hong Kong after completion of the contract and therefore the condition specified in (5) above is acceptable to him. He would lease a flat in Hong Kong and the estimated rent is HK$480,000 per annum.
Required:
Based on the information above, recommend possible ways, with explanation, that Benedict may propose to restructure his remuneration package with a view to minimizing his Hong Kong salaries tax liability.

Answer 1

Benedict can restructure his remuneration package by proposing a housing allowance, spreading out bonus and gratuity payments, and structuring the share option as a restricted stock unit plan to minimize his tax liability.

Step-by-step explanation:

In order to minimize Benedict's Hong Kong salaries tax liability, he can consider proposing the following restructuring of his remuneration package:

1. Instead of receiving a salary, he can propose to receive a housing allowance to cover the estimated rent of HK$480,000 per annum. This housing allowance is generally not subject to salaries tax.
2. He can propose to convert the sign-on bonus and contract gratuity into monthly payments over the duration of his contract. By spreading out these payments, he may be able to minimize taxes as the progressive tax rates in Hong Kong may result in lower overall tax liability compared to receiving a lump sum payment.
3. He can propose to structure the share option as a restricted stock unit (RSU) plan, where the shares will vest over a period of time rather than being immediately exercisable. This can help to defer tax on the gains from exercising the option until a later date, potentially resulting in lower overall tax liability.