Hong Kong Fact-File Part 1:
Business Formation for Individuals

1.8 Hong Kong Family Business Ownership

Types of ownership structure for individuals in business

As in most countries, it is possible to employ one’s spouse in Hong Kong, whether one is operating as a sole proprietor, or has established a limited company. This can have advantages, in terms of retaining income within the family, in the knowledge that they are likely to work hard in the interests of the company, and in the lower wages that they may be prepared to accept (at least on start-up), again in the best interests of the company.

However, there can also be disadvantages to paying a salary to your spouse, as any contributions paid into the Mandatory Provident Fund by the employer on behalf of an employed spouse are not deductible from profits tax (for either incorporated or unincorporated businesses) as contributions paid on behalf of a member of the same household are not mandatory under the Scheme Ordinance.

The spouse will be liable to salaries tax at the end of the tax year, meaning that an option to reduce the overall tax burden of the family would be for the individual and his/her spouse to opt for joint assessment.

Taking on one’s spouse as contractor or self-employed worker would also make the spouse liable to profits tax of 15% of income. As all self-employed individuals must pay a minimum of HKD1,000 per month to the Mandatory Provident Fund, the spouse is responsible for the payment but can deduct up to HKD12,000 annually from their taxable income. As with employing ones’ spouse then payments made to him/her in the contractor/self-employed role will not be deductible from profits tax.

As employing staff can be time consuming in terms of administrative and other obligations to be met under the Employment Ordinance (quite apart from the possible marital strife that employing one’s spouse may entail!), a business partnership can be a good alternative, as this would ensure equality between the two parties and sharing of the tax burden; if a spouse is a named partner within the business and receives his/her share of the profits in line with the partnership agreement then he/she is liable to profits tax on their portion. Contributions to the Mandatory Provident Fund are deductible from that income.

Under Hong Kong tax rules, all individuals are assessed separately unless a married couple elects for joint assessment (more accurately described as Personal Assessment as a couple). Joint assessment is preferable in cases where one spouse’s income is lower than their tax-free personal allowance, as the joint income will be aggregated and married couple’s allowance as well as all other allowances deducted from the joint total income. This could result in tax savings. In the event of the total tax due being higher under joint assessment, then separate notices of assessment will be issued.

Third party investment via Angel Investors, lenders or government is another possibility. Before pursuing such a path, individual entrepreneurs must bear in mind that third party investors will require guarantees on returns and may not be prepared to allow the business to develop in the same way as envisaged by the entrepreneur at the outset.

Introductory Guides

Fact-File

Part 1: Hong Kong Business Formation for Individuals

Back to main Hong Kong page