Can I Claim Motor Vehicle Expenses as a Business Expense in Hong Kong?
The business-use proportion of motor vehicle costs is deductible. There is no published IRD per-kilometre rate. Capital allowances apply to the vehicle purchase price: an initial allowance of 60% where available for plant and machinery, then annual allowances at 10%, 20% or 30% on the reducing value.
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What Inland Revenue Department (IRD) says
Section 16 allows deduction of vehicle running costs to the extent they are incurred for producing assessable profits. Section 39B and related provisions provide capital allowances (initial and annual) on qualifying expenditure on machinery and plant. Motor vehicles used partly for private purposes attract proportional disallowance. There is no official mileage rate. Items that qualify for the same rate of annual allowance are grouped in one pool. When a vehicle is sold, any proceeds are set against the pool balance, and a balancing charge or allowance can follow. Hong Kong also charges first registration tax when a vehicle is bought, which is part of the cost of the vehicle for allowance purposes.
When you can claim
- Petrol, tolls, and parking costs for journeys made wholly for business purposes
- Annual vehicle maintenance and servicing costs in proportion to business use
- Capital allowances on the vehicle purchase price, grouped in a pool with other assets that earn the same annual allowance rate, where the vehicle is used for business
- Insurance and registration fees in proportion to business use
- Parking space rental or tunnel tolls for business journeys
When you cannot claim
- The personal-use proportion of all running costs (petrol, maintenance, insurance)
- Fines and parking penalties
- Costs of a vehicle that is exclusively personal-use
- Depreciation calculated in the accounts (replaced by IRD capital allowances)
- First registration tax paid on a vehicle used wholly for private purposes
Good to know
Pro tip: Keep a mileage log or GPS record of journeys to establish the business-use percentage. In Hong Kong, where many directors do not own cars and use taxis, a motor vehicle claim by a sole director of a small company may attract scrutiny. Substantiate thoroughly.
Important: A company that provides a car to a director or employee for private use should expect the IRD to apportion the cost and to treat part of the benefit as taxable to the individual through Salaries Tax. A written policy and a mileage record help to support the apportionment.
Related expenses
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