How to Pay Yourself from a Hong Kong Company: Salary vs Dividends

Hong Kong does not tax dividends. Not when your company pays them, not when you receive them. No dividend tax, no withholding, nothing. And yet, dividends are not always the right way to pay yourself. Sometimes they're not even the cheapest. So how do I pay myself for my Hong Kong company? You have three instruments, a salary, director's fees, and dividends. Each is taxed differently. Each creates different paperwork, and one of the three is a quiet trap for overseas founders. I'll show you which one before the end. By then, you'll know exactly how the three compare, and which questions decide your own split.

First, get the map clear, because the three routes are taxed by two different systems. A salary is employment income. You work for the company under an employment arrangement, and Hong Kong taxes it, if at all, under salaries tax. Director's fees are different. They pay you for holding the office of director, approved by shareholders, no employment needed. And they're also within salaries tax, but under a special rule we'll get to. Dividends are different again. They're not pay at all. They're a distribution of the company's after-tax profits to you as a shareholder. That last phrase, after-tax, matters. 5 above, as we covered in our 0% tax video.

Salary and fees, by contrast, are deductible expenses. They come out of profits before the company is taxed. Keep that trade in mind. It drives everything. Dividends first, because they're the headline. In your hands, a dividend from your Hong Kong company carries zero Hong Kong tax. No income tax, no withholding, no reporting on a personal tax return here. But two conditions guard the door. One, the company can only distribute what it has actually earned. Section 297 of the company's ordinance, Chapter 622, allows distributions only out of profits available for distribution. Accumulated realized profits, less accumulated realized losses. No profits on the books, no dividend.

And paying one anyway is an unlawful distribution. Two, on the books means the books must exist. Your dividend stands on your bookkeeping and your audited accounts. The records we covered in our bookkeeping video. A clean dividend is a bookkeeping product. And remember the trade? Dividends are not deductible. The company pays its profits tax first, and you take what's left, tax-free here. Now salary. And for overseas founders, this is where it gets genuinely interesting. A salary is deductible for the company and taxable to you under Hong Kong salaries tax. Progressive rates from 2 to 17% after allowances, capped by a standard rate of 15%, rising to 16 on very high income.

The basic allowance alone, currently 132,000 Hong Kong dollars a year, means a modest salary can attract very little tax. But here's the rule most founders have never heard. Under Section 8, 1A of the Inland Revenue Ordinance, Chapter 112, if you render all your employment services outside Hong Kong, your salary can fall outside Hong Kong salary tax entirely. And short visits of up to 60 days in a tax year don't spoil it. Picture a Shopify founder in Lisbon, running everything from Portugal, flying in once a year for supplier meetings. Her salary from the Hong Kong company may be taxed nowhere in Hong Kong, while still being deductible for the company. One caveat before you celebrate.

Whether the employment itself is Hong Kong-sourced is a facts test. The department's practice note, DIPN 10, looks at where the contract was made, where the employer resides, where you're paid. This is exactly the kind of thing to set up properly, not casually. And now the trap I promised, director's fees. Fees for holding office as a director of a Hong Kong company are always subject to Hong Kong salaries tax, in full. The all services outside exemption does not apply. The 60-day rule does not apply. It doesn't matter that you live in Lisbon, London, or Lima, and have never set foot in Hong Kong.

The department's position, set out in DIPN 10, is that a directorship is an office, and the office sits where the company sits. Same person, same money, same work, but labeled director's fee instead of salary. And suddenly, it's fully taxable in Hong Kong when the salary might not have been. For overseas founders, this makes the director's fee usually the worst of the three instruments. And it's precisely the one many pick first because it sounds the most official. Whatever mix you choose, the paperwork is not optional. Salary or fees make your company an employer in the department's eyes.

An employer's return, form BIR 56A with an IR 56B for each person, goes in every year, issued around the 1st of April, and due within one month. Directors are reported regardless of the amount paid, even a zero. New appointment? Form IR 56E within three months. Payroll records, kept seven years, like everything else in your books. MPF retirement contributions generally apply to employees in Hong Kong. But if you're not ordinarily resident in Hong Kong, an exemption usually covers you. Check your case. Dividends, by contrast, generate none of this. One more reason founders love them, but they demand the clean, audited books that every lawful dividend stands on, as we saw a few minutes ago.

There is no zero paperwork option. There's only choosing which paperwork. Now the honest part. In three sentences that could save you real money. First, everything in this video is the Hong Kong half of your answer. Your home country almost certainly taxes you on worldwide income, and most countries tax foreign dividends, Hong Kong zero notwithstanding. The right split depends on where you are tax resident, and that's a question for an advisor at your end as much as ours. Second, deductions must be real. A salary the company deducts has to be genuine pay for genuine work. The department can and does challenge excessive or artificial remuneration, especially in one-person companies.

Third, don't improvise mid-year. The instruments interact with your audit, your offshore claim if you make one, and your employer filings. Decide the structure once, document it, and let your books carry it. Hong Kong is low tax, not low standards. And this is exactly where that line earns its keep. The facts in 30 seconds. Three ways to pay yourself from a Hong Kong company. Dividends. Zero Hong Kong tax in your hands. Paid only from real booked profits. Section 297 of the company's ordinance, chapter 622, but not deductible for the company. Salary.

Deductible, taxed at 2 to 17%, and possibly not taxed in Hong Kong at all if you work entirely outside the city under section 8, 1A of the Inland Revenue Ordinance, chapter 112. Director's fees. Always fully taxable here, wherever you live. Usually the worst pick for overseas founders. Paperwork. Employers return yearly. IR 56E in three months, records for seven years. And your home country gets the final word. Plan both ends. At Captime Corporate Management Limited, this is daily work. Our bookkeeping keeps your profits cleanly distributable. Our tax filing covers both sides, the company's profits tax return and the employer's returns for your salary or fees.

And we'll walk you through how the three instruments fit your situation before you commit to a structure. hk or use the link in the description. No credit card, no obligation. Thank you for watching. If this made payday clearer, give it a like and subscribe. Accurate, hype-free guides to running a Hong Kong company from first invoice to first dividend. See you in the next video.