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.
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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. The mandatory contribution is 5 percent of relevant income for the employer and the employee, each capped at HKD 1,500 a month (relevant income is capped at HKD 30,000 a month). An employee earning below the minimum relevant income of HKD 7,100 a month pays no employee contribution, but the employer still contributes 5 percent. Contributions are due by the 10th day of the following month, with a 5 percent surcharge on late payment.
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.
Important: Employers file the Employer's Return of Remuneration and Pensions (BIR56A) each year about one month after the IRD issues it, with an IR56B for each employee. Forms IR56E (new employee, within 3 months of starting), IR56F and IR56G (departures, 1 month before) are also needed. Since 1 May 2025 employers can no longer use their MPF contributions to offset severance or long service payments.
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