Can I Claim Staff Salaries and MPF as a Business Expense in Hong Kong?
Yes. Employee salaries, bonuses, and employer MPF contributions (5%, capped at HKD 1,500/month) are fully deductible as business expenses under Section 16.
What Inland Revenue Department (IRD) says
Section 16 of the Inland Revenue Ordinance treats staff remuneration (salaries, wages, commissions, bonuses, allowances) as a deductible expense. Mandatory MPF employer contributions are specifically deductible. Voluntary MPF contributions above the mandatory minimum are also deductible up to 15% of the employee's total annual remuneration.
When you can claim
- Monthly salaries and wages paid to employees engaged in the business
- Performance bonuses and commission payments to sales staff
- Employer's mandatory MPF contributions (5%, max HKD 1,500/month per employee)
- Employer's voluntary MPF contributions up to 15% of total remuneration per employee
- Fringe benefits with a clear business purpose (e.g., medical insurance, staff travel)
When you cannot claim
- Salaries paid to a director/shareholder that are unreasonably high and structured as disguised profit extraction
- Amounts paid to employees who are not genuinely engaged in the business activity
- Voluntary MPF contributions exceeding 15% of the employee's total remuneration
Good to know
Pro tip: Keep clear employment contracts and payroll records. The IRD is alert to director-shareholders paying themselves a salary that eliminates all profits. A salary consistent with the market rate for the role performed is defensible; a salary of HKD 5M for a company earning HKD 5M is not.
Related expenses
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