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1.
Q:
Under the Scheme, a participating employer employing each eligible graduate will receive an allowance of $10,000 per month for a maximum period of 18 months. Are the wages received by an employee (funded by allowance under the Scheme) subject to salaries tax?
A:
The allowance is paid to encourage employers to join the Scheme and compensate their additional expenses in training the graduates. The wages received by the employee (though funded by allowance under the Scheme) are income from employment subject to salaries tax.
2.
Q:
Under the Scheme, a participating employer will receive an allowance of $10,000 per month per employee for a maximum period of 18 months. Is the employer exempt from the payment of profits tax in respect of the allowance received? In filing its profits tax return, can the employer claim deduction of the wages financed by the allowance?
A:
The allowance received by the employer under the Scheme is a “grant, subsidy or similar financial assistance in connection with the carrying on of a trade, profession or business in Hong Kong” as stipulated in section 15(1)(c) of the Inland Revenue Ordinance. It is regarded as a trading receipt and is subject to profits tax. Regarding the tax deduction, the employer can claim deduction of employees' wages incurred in the production of chargeable profits, irrespective of whether any portion is funded by the allowance.