Can my company deduct my salary and director's fees?
For a limited company, yes: salary and director's fees that are genuine and incurred for the business are deductible, and the director reports them under salaries tax. For a sole proprietor or partnership, the owner's own pay is not deductible. Related MPF contributions for owners have specific limits.
Company and owner-director. A company is a separate taxpayer. Remuneration paid to a director or shareholder-employee is deductible if it is genuinely paid for services and meets the normal "incurred in producing profits" test. The director then reports it as income from employment or an office and pays salaries tax on it (see the salaries tax answer).
Reasonableness. Pay that is excessive, or that is really a disguised dividend or distribution, may be challenged by the IRD. Keep contracts, board minutes and payroll records.
Employer duties. The company must report remuneration paid to directors and employees to the IRD each year on the employer's return (BIR56A with Form IR56B for each person), and contribute to MPF where required.
Sole proprietorship and partnership. The business is not a separate legal person. The Inland Revenue Ordinance bars deducting remuneration or interest on capital paid to the proprietor or partners (or spouses). An owner's drawings are not an expense; the profit is taxed whether or not it is withdrawn.
Mixed planning. Choosing between salary and dividends affects both tax and MPF. Dividends are not taxed in Hong Kong in the normal case, but the amount of salary affects deductions, allowances and mandatory contributions, so get advice for your facts.
Legal basis
- Inland Revenue Ordinance (Cap. 112), s.16
- Inland Revenue Ordinance (Cap. 112), s.17
- Inland Revenue Ordinance (Cap. 112), s.52
Sources
Applies to YA 2025/26 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- How does provisional profits tax work in Hong Kong?Provisional profits tax is an advance payment charged for a year of assessment, calculated from the previous year's assessed profits. It is then offset against the final tax for that year, with any excess applied to the next year's provisional tax or refunded. It is paid in instalments set out on the demand note.
- How can I hold over (reduce) my provisional profits tax?You can apply in writing to pay less or none of your provisional profits tax on prescribed grounds, most commonly if profits for the year are likely to be below 90% of the base figure. Apply at least 28 days before the due date or within 14 days after the demand note is issued, whichever is later.
- What tax reduction did the 2026-27 Budget give to Hong Kong businesses?The 2026-27 Budget provides a one-off 100% reduction of profits tax for year of assessment 2025/26, capped at HK$3,000 per business. It applies to the final tax, not to provisional tax, and needs no application. Profits tax rates were not changed. The legislation was passed on 13 May 2026 and gazetted on 22 May 2026.
- Which business expenses are deductible for Hong Kong profits tax?Expenses are deductible to the extent they are incurred in producing chargeable profits, and are not of a capital nature or private. Typical allowable items include rent of business premises, staff costs, bad debts, repairs, trade mark registration, MPF contributions for employees, and approved charitable donations within limits.
- What expenses cannot be deducted for Hong Kong profits tax?The law prohibits deductions for domestic or private expenses, capital losses and expenditure, insurance recoveries, rent of premises not used for the business, profits tax and other IRO taxes, and remuneration or interest paid to a sole proprietor or partners and their spouses.