Can I Claim Entertainment Expenses as a Business Expense in Hong Kong?
Entertainment is deductible to the extent that it is incurred in the production of chargeable profits and is reasonable in the circumstances. Hong Kong has no blanket ban. Social entertaining and private entertainment are not deductible, and the taxpayer must keep records of the occasions, the people entertained and the receipts.
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What Inland Revenue Department (IRD) says
The general deduction rule in section 16 of the Inland Revenue Ordinance applies: outgoings and expenses are allowed to the extent they are incurred in the production of chargeable profits. The IRD says entertainment expenses are deductible to that extent, and the amount must be reasonable having regard to the taxpayer's circumstances. Domestic or private expenses are disallowed under section 17. Proper records of the occasions and people entertained, with receipts, must be produced when the IRD asks.
When you can claim
- Meals and hospitality for customers or suppliers that are directly linked to negotiating or keeping business, with a record of the occasion and the people present
- Entertainment of overseas business contacts in connection with the trade
- Staff meals at business conferences or training events where the main purpose is business
- Staff welfare events such as an annual dinner, where the cost is reasonable and the event is for employees
When you cannot claim
- Entertainment that is purely social, private or for family and friends
- Amounts that are not reasonable compared with the size and income of the business
- Entertainment with no record of who attended and why
- Gifts and hospitality for the owner or director personally
Good to know
Pro tip: Write on the receipt the date, the guests, their company and the business topic discussed. A short written entertainment policy approved by the board also helps. The IRD does not publish a fixed cap, and claims that are large compared with profits are examined most closely.
Important: Older sources describe entertainment as barred in Hong Kong. IRD guidance says it is deductible to the extent it produces chargeable profits and is reasonable, so the test is evidence and reasonableness and not an automatic ban.
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