Salaries Tax - Back Pay, Contract Gratuities, Deferred Pay and Arrears of Pay
In Hong Kong, personal tax usually refers to salaries tax. This article provides you with an overview of Hong Kong’s salaries tax on how to handle Back Pay, Contract Gratuities, Deferred Pay and Arrears of Pays.
Back pay, contract gratuities, deferred pay and arrears of pay are generally assessable under salaries tax. Here you can learn more about reporting this type of payment on your tax return and how such lump sum payments can be related back.
Assessment and Relating Back
Back pay, contract gratuities, deferred pay and arrears of pay resulting from an award of salary or wages are taxable, regardless of whether you receive them during the course of employment or upon or after cessation of employment. However, you can apply to have such lump sum payments related back to the service period for which they are made. Where that period exceeds 3 years, the amount will be related back at a constant rate over 36 months ending on the date of entitlement to the payment or the last date of employment, whichever is the earlier.
Application to have a lump sum payment related back can be made when you file your tax return. The Inland Revenue Department will only relate back the lump sum if it will reduce your overall tax liability.
You can visit HKIRD’s website for more information and example for such payment relevant to salaries tax.